In 2007 end, the Organisation for Economic Co-operation and Development (OECD) commented that "the current economic situation is in many ways better than what we have experienced in years. Our central forecast remains indeed quite benign".
Three months later, the financial crisis began: the US stock market started its long decline and house prices fell. Financial institutions began to resemble tenpins rather than the pillars of society they had once been and economies all over witnessed the Global Meltdown.
What is Global Meltdown?
The term Global Meltdown refers to a sudden change in the economic stability in an economy, a situation where some of the huge economic institutions suddenly lose a large part of their assets. It may be due to the down turn of banking institutions or stock market crashes or bubble or huge inflation or sovereign default. The economic crisis and associated recession originated in the US in early 2008, spread to Europe and engulfed most of the economies in both developed and developing world. The various economic activities such as production, employment, saving, investment and consumption were badly affected and thereby the economy of the country as well as an individual did undergo a downturn during the crisis. Historically, the world economy witnessed several economic crises in the past few decades- the most severe being the Great Depression of the 1930s. Later on the world witnessed the OPEC oil crises of the 1970s, loan crisis of the 1980s which made an economic downturn in the Japanese economy in the 1990s and the Asian economic crisis in the latter part of 1990s. All these recessionary trends had been accompanied by shocks to the economies of one or more markets and it took several years of concerted economic and regulatory policy adjustments for the affected markets to return to stability.
The Beginning of The Crisis
Beginning with bankruptcy of Lehman Brothers on 23rd September 2008, the global economy entered a phase marked by failures of prominent US and European banks. It is stated that an excessively loose monetary policy in the 1990s in major developed economies transformed into global imbalances and a full-blown financial and economic crisis for all the economies of the world. As we learn, the current financial crisis in US originated due to the indiscriminate lending of housing loans in the country’s sub-prime mortgage market.
The five giant US Investment banks, with combined liabilities of $4 trillion, either went bankrupt (like the Lehman Brothers) or were taken over by other companies (Bear Stearns and Merrill lynch) or were bailed-out by the US government (Goldman Sachs and Morgan Stanley) during 2008. Government-sponsored enterprises Fannie Mae and Freddie Mac either directly owed or guaranteed nearly $5 trillion in mortgage obligations, with a similarly weak capital base, when they were placed into receivership in September 2008. As a result of the financial crisis in 2008, 25 US Banks became insolvent and were taken over by the Federal Deposit Insurance Corporation. By August 14th 2009, an additional 77 banks had become insolvent. The United States has already lost over 6 million jobs since the recession began. Citibank, Bank of China, Banco de Oro of Philippines, Bangkok Bank, Bank of Nova Scotia of Singapore failed during crisis. Years of unrestrained spending, cheap lending and failure to implement financial reforms left Greece badly exposed when the global economic downturn struck. National debt, put at €300 billion ($413.6 billion), reached 120% of gross domestic product in 2010.
Euro Zone Breaking Point
Most of the West has been fluctuating between signs of economic green shoots and the threat of impending disaster over the last few months. Currently it is most visible in the case of the Euro Zone. With the recent downgrade of Irish debt to one level above junk by Moody's it will...