What The Ills of The Global Economy?

With the continuing economic crisis since 2007, everybody is busy one central question: Why did not leave until the crisis today? Why not remain in our midst?, And unless we deepen our understanding of the roots of the crisis, we can not find a viable solution.Until this moment, we do not have to understand we do not have the solution.

Was said that the financial crisis, government is focusing effort on both sides of the Atlantic to the banks, and launched plans to stimulate the economy as a topical analgesics are necessary to meet the shortfall in the money supply, while the banking sector recovers and resumes his activity in the lending business as usual. Today, restored to health and profitability of banks and returned to the disbursement of bonuses, but lending has not regained its health, despite low interest rates of short and long term in an unprecedented way.

Officials claim that the weakness of banks lending to the poor return on eligibility and credit worthiness of borrowers due to the continuation of the ills of the economy. It is true that there is data to support this claim by what, but large companies have trillions of dollars, so money is not confined to these companies for the expansion of investment and employment.

However, some small companies – and perhaps many of them – in the position is different: she is unable to expand its business to its need for money, which causes the contraction of the activities of many of them.

However, business investment returned in its entirety – except the construction sector – to a 10 per cent of GDP, which is slightly less than it was before the crisis and of 10.6%.As the construction industry filled with a large surplus of more than needed, no opportunity in sight for the return of confidence to its previous level before the crisis however we did in the banking sector.

Fuses the crisis?
The main factor that triggered or accelerated the economic crisis, chaos experienced by the banking sector after the fall-out and reckless application of controls banking.Today, diminishing opportunities to recover from this crisis because of excess supply crunch in the real estate and growing household debt.

But the economy was very ill before the crisis, real estate Valfaqaah was a fig leaf covering the real weaknesses. Were it not for the presence of consumption supported by the “bubble economy”, we would have seen sweeping reductions in aggregate demand.

Instead of this occurs, the savings rate fell to 1%, while 80% of the lower class of Americans spend annually at a rate of 110% of their income. Even if the banking sector has recovered fully, and did not accommodate the profligate class of Americans studied the importance of savings, shadow rate of consumption by 100%. And therefore that any of the betting on the return rates of consumer Kkhalas crisis living in a fantasy.

Problems of the global economy
Financial sector reform was necessary for economic recovery, but it was not enough. To understand what to do, we should understand the economic problems before the explosion of the crisis.

First, America has been a victim of their success and the world economy, the rapid increment in the rates of industrial production exceeded the rate of demand, which caused a drop in employment in the production sector, and turned large numbers of workers to the services sector.

This problem is similar to the problem that emerged in the early twentieth century, when the forced rapid growth of agricultural production workers to shift from rural to urban centers of production. With the decline in incomes of workers of the agricultural sector more than 50% between 1929 and 1932, it was possible to expect a mass exodus.

But the workers remained “trapped” in rural areas, due to lack of resources necessary for their move to urban centers. With the decline in incomes decline in aggregate demand, which led to the rise of urban unemployment rates and productivity.

For America and Europe, the need for migration of workers to the industrial sector reinforced by shifts in the “comparative advantage”: The number of jobs in the industrial sector is not limited to the world, but are local jobs in its entirety, although I have said it.

Globalization was a factor (just a factor) contributed to the emergence of another second major problem, of worsening inequality. Vantqal income to spend than those who do not spend reduces aggregate demand. In the same way, has led the surge in energy prices to shift the purchasing power of the United States and Europe to the oil-exporting countries paid by the volatility of prices of energy exports to the hoarding of a large share of their incomes