The 2007/9 crisis

Since the economic crisis in 2007/9 the global economic system has beenin recession. Especially for advanced countries in Europe the impact of thecrisis were even greater than expected and is stagnating the European economyever since. But what are the real causes for the recent global economic crisis.

There are many theories for explaining the economic crisis. ProfessorHoward Nicholas researched the real causes for the recent global economiccrisis and the continuing global economic problems and discovered a new theory.Instead of researching the present, the professor researched global economicevents that happened already a century ago. Based on different types ofanalysis he explains that the recent global economic crisis could have beenforeseen many years ago.

The current problems

Even now the problems in the financial system still aren’t completelygone. Advanced countries try to reduce the amount of budget deficits and areinjecting a lot of currency in the financial market to sustain its growth.While advanced countries are heavily trying to keep the economies growing,   developing countries however have to dealwith rise of inflation, controlling their currencies and defining morefinancial market regulations.  

The long-wave cycle

There are numbers of differenttheories on the real causes of the last global economic crisis. There alsoisn’t only one cause for explaining the global economic turmoil. But the crisiscould have been predicted when studying business cycles. The financial sectoris based on this principle. The stronger get stronger and the weaker companiesperish. But when a company get too big, the market will be saturated andsmaller innovative companies will grow and eventually overtake. So in otherwords the economic crisis could have been predicted, the financial marketoutgrown itself out of proportions and collapsed resulting in the shift ofpower form advanced countries to developing countries for example China.

Aside from following theevents based on workings of the long cycle, there were a few certain eventsthat initiated the end of phase of the outgrown financial sector. The globalizationprocess played a big role in the shift in balance of global economic power awayfrom the US and towards Europe and Developing countries. This resulted in the fall or stagnation in output growth, profitability and real wage levels inthe US and other advanced countries were hidden by an excessive expansion ofcredits and debts. Not very important factors but are responsible for theeconomic crisis are corruption, mismanagement, misguided governmental policiesand data manipulation.    

Future prospects

Howard Nicholas did not only research the causes of the global economiccrisis, but also tried to make future prospects of the global economy. On shortterm the professor predicts the global economic growth will weaken and possiblyturn into a recession in late 2012. More likely, the economy will stagnate in2013/14. Especially Europe will be hit hard, because of the political/economiccrisis that is happening in Europe right now. Continuing bailing outgovernments and budget deficits are bad for the economy but will also result indecline in demand in emerging markets. 

In the long-term continuing stagnation ofeconomic growth in the advanced countries will probably be the case, because ofthe weakened financial sector, high unemployment, continuing high governmentdebt and budget deficits. You would say that the problems in advanced countrieswill also result in a decrease of growth in developing countries. On thecontrary, the rapid growth of a number of Latin American and African countriesis and will be high due to high primary commodity prices. It is unlikely thatthese growth rates will be sustained as the long upswing progresses and thesupply of raw materials increases. However, what is clear is that the growthrates of manufacturing oriented economies will continue to be high. We canconclude that we have to react and adapt to the globalization process tosustain economic growth and last but not least study business cycles in orderto forecast economic downfalls in global economy.  

About the Author:

Caspar van der Plas, coming from the Netherlands and majors in Trade Management aimed at Asia (International Trade) at the Rotterdam Business School, Rotterdam University of Applied Sciences. He attends the Contemporary China Studies Programme at Fudan University and works for the Fudan Development Institute and Shanghai Forum 2012 Committee as an internship.