Global Financial Crises and the government response

A crisis not only presents an immediate challenge that has to be faced, it also provides an opportunity to address long-term problems when people are willing to reconsider established conventions. The present economic crises do not, call for a "new capitalism," but they do demand a new understanding of older ideas, many of which have been sadly neglected. What is also needed is a clearheaded perception of how different governments and institutions actually —going beyond short-term solutions and contribute to producing a more decent economic world.
Real economic efficiency implies including all resources that affect sustainable human well-being in the allocation system, not just marketed goods and services. Our current market allocation system excludes most non-marketed natural and social capital assets and services that are critical contributors to human well-being. This is why the present crisis also makes it important to face the neglected long-term issues like conservation of the environment and national health care, as well as the need for public transport, which has been very badly neglected in the last few decades and is also so far sidelined
Economic affordability is, of course, an issue, but as the example of the Indian state of Kerala shows, it is possible to have state-guaranteed health care for all at relatively little cost. Since the Chinese dropped universal health insurance in 1979, Kerala—which continues to have it—has very substantially overtaken China in average life expectancy and in indicators such as infant mortality, despite having a much lower level of per capita income. So there are opportunities for poor countries as well.
But the largest challenges face the United States, which already has the highest level of per capita expenditure on health among all countries in the world, but still has a relatively low achievement in health and has more than forty million people with no guarantee of health care. Part of the problem here is one of public attitude and understanding.
The role of government also needs to be reinvented. In addition to government's role in regulating and policing the private market economy, it has a significant role to play in expanding the "commons sector", that can propertize and manage non-marketed natural and social capital assets. It also has a major role as facilitator of societal development of a shared vision of what a sustainable and desirable future would look like.
The long term solution to the financial crisis is therefore to move beyond the "growth at all costs" economic model to a model that recognizes the real costs and benefits of growth. We can break our addiction to fossil fuels, over-consumption, and the current economic model and create a more sustainable and desirable future that focuses on quality of life rather than merely quantity of consumption.
It will not be easy; it will require a new vision, new measures, and new institutions. It will require a redesign of our entire society. But it is not a sacrifice of quality of life to break this addiction. Quite the contrary, it is a sacrifice not to.
As far country like India is concerned, it was delicately poised to face the global recession. And the fact that $5 billion worth of capital has flowed into India with the start of the current fiscal is a promising sign of the easing of the liquidity situation. The impact of the global economy on India , primarily on the demand side, is less than would otherwise be the case. But as long as on the sully side, there is productivity and domestic savings and the growth of capital and the growth of investment leading to the growth of capacity
Montek Singh Ahluwalia, the deputy chairman of the Indian planning commission revealed that India should be able to grow at 8-9% . “The focus is on savings whether we are investing enough, if there will be enough inflow of adequate foreign investment and whether domestic capital will be able to achieve the productivity gains in what we have to look at” said Singh. All known cases of high growth are not cases where just expand capital stock but also where you have high levels of productivity. He said that the country is on a strong wicket on many fronts and the return on capital will also be higher in economies like India, which are poised to grow faster than their western counterparts.
Globally we can not expect a robust growth but there will be growth in 2010-11. This puts an end to global uncertainty once confidence is restored global investors will look for returns. Since the West will grow slower, the return on capital will be higher in economics which will grow faster in India.
The world Bank in its Global Development Finance Report released recently has also projected an 8% GDP growth fro India in 2010, which will make it the fastest-growing economy trailed by China with 7% growth. The Bank revised the growth rate for the Indian economy for the current year to 5.1% from an earlier projection of 4%.
The financial sector reforms were on the agenda in the Indian economy and there is a view that because there has been a global financial crises, there should be rethinking on financial sector reforms. What the world crises shows is unthinking liberalization of the capital account and expansion of unregulated financial sector can be dangerous because it leads to a lot of leverage and it creates lot of activity in areas where there isn’t enough regulation. But that was the intention, India was always of the view that the financial sector must operate within regulations but within those there should have enough freedom. India has a well regulated system and should allow private sector banks to expand more freely. Once it has the regulations, competition among banks should be allowed. The country has allowed capital inflows but has not suggested a balanced system with some restrictions. There are lessons to be learnt that too many people are learning the wrong thing to stop every thing. The financially over liberalized economies are moving towards the center of the spectrum but was over controlled and have to move towards less control in the sense of letting more players participate.
It’s just not possible for trillions of dollars to disappear. Money does not disappear. The amount of money is fixed, more or less. Yes, it’s possible for dishonest governments to churn out more bills, but in major industrial countries that only happens to a limited extent, because it reduces the purchasing power of each dollar of savings, and rich people don’t like that. The money didn’t just evaporate. It went to government pension funds, to the Pentagon, to the arms dealers, to the bank executives as bonuses for the record numbers of fraudulent loans handed out by their underlings, to the owners of sweatshops in distant lands, and above all it went to the rentiers, the ultimate lenders of money.
Lending is far better than working for a living – that’s why if we buy a house for Rs15,00,000, we’re expected to pay that money back to the bank, along with Rs5,00,000 in interest. The only people for whom money “disappeared” were the middle class.
In the meantime, there must be survival strategies for those whose income has half the spending power of our parents’, for those of us who bleed ourselves dry trying to educate children who will be climbing over garbage dumps in later decades.
In fact no government, in the perspective of global financial crises, is telling or informing its people to get rid of all debts, including such things as student loans, credit-card accounts, mortgages, and car payments. As time goes by, there will be less and less opportunity to pay off such debts. Or Don’t be involved in the stock market or any similar method of investment.
Investigate the reputation of your bank. Consider switching to a safer currency, if there still is such a thing. Swiss francs or Euros are probably the best bet. Don’t just go for currencies that are rising rapidly
Start reducing your possessions, and consider a more nomadic way of life. Most westerners own such vast quantities of junk that moving from one house to another is like re-living D-Day. We are convinced by advertisers that happiness consists in owning one of everything, but we are buried in our possessions. The problem there is that, even now, one cannot always count on the police when a dispute occurs, and people living in rural areas sometimes speak of forming their own vigilante squads. Vigilantism, however, is not only illegal but often just plain impractical. When a gang of outlaws moves in next door, as will happen in the coming anarchy, you may wish your assets had been more disposable. In the uncertain future, there could also be a dozen other reasons, not necessarily of so grim a nature, why you might want to be able to pack your bags fairly quickly.
The present savings will be cut in half one day. Money will be eroded by inflation, as goods become harder to make and harder to transport. Food, clothing, and countless household items, which even now are so cheap that we rarely bother to look at the sales slip, will not be so readily obtainable in the future.
Watch out for currency collapses, even if you live in a major industrial country. In the 1980s and 90s, especially in the wake of “free trade” agreements, money-market speculators moved in and forced the currencies of several nations to fall considerably vis-à-vis those of more-powerful countries. Remember the fate of the Mexican peso. Without a gold standard or fixed exchange rates, any form of money has only the spending power that the speculators allow.
That real wealth is in the head of a person. Even if your survival bunker has a thousand tools and weapons, your mental powers are more important. You don’t need a dozen books if you’ve already memorized them. Besides knowledge and wisdom, your head should also contain a modicum of courage, compassion, and all the other virtues we managed to forget.
Even though the Indian government has heavily responded to the global financial crises, but it needs to consider the aforementioned facts in its true letter and spirit, so as to justify the world over projections in the economic restoration.