Global Economic Crisis – Immediate Solution

The turbulence we are going through is unprecedented in the world History. What started as A financial institution failure, affected not only the leading financial institutions in the world but also the major developed economic systems in the world leading to a systemic failure.

Unlike in the past , when it had an impact on only a few countries and few asset classes, this time, the crisis had its effect on almost all countries in the world and all asset classes. The crisis had a contagion effect and spread far and wide without an end in sight creating more and more uncertainties day by day.

When Government creates stimulus it goes to increase the government debt making the government vulnerable to financial weakness. In a few cases , where there was a government failure, investors have taken an hair cut in their investments. But in General, Sovereign debt is supposed to be more trustworthy since Central Banks can print money to lend it to the government when in need.

Governments in an effort to stop economic slide, tried many measures including Monetary and Fiscal Stimulus but black swan events had overtaken the efforts of governments. Many of the developed countries printed more money and tried to stimulate the Economic Growth and reduce the unemployment. But it has gone into a spiral. The only effect is the outstanding debts of governments are going up, their credit rating is being downgraded and there was a lot of trust deficit between governments.,Banks and investors.

Everybody is in a dilemma searching for solutions and immediate remedy. The effective solutions are eluding the policy makers.

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According to Classical Economics, Printing money is likely to increase the demand, inflation and reduce the value of money. This is true in cases of countries where the potential for high growth, high