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Global Melt-Down: Causes, Effects and Prospects

Updated on May 31, 2009

Global Melt-Down:Causes, Effects and Prospects


Throughout the globe, the dominant discussion is on the present global economic crisis known as the global melt-down and concerted efforts have been directed towards its solution by the economic experts. Today, most economies have crumbled as result of the problems. Many households, firms and governments are entangled in this depression that all are asking and even looking on the day this will end. Actually, this is not the first time the world is experiencing recession. The first economic recession happened in 1930s but the difference between it and the current recession is on it causes. The recession of 1930 was caused by the way countries balance their unfavorable term of trade which later led to series of reiteration from other countries. At this period, the main measure adopted by a country experiencing unfavorable trade balance was devaluation of its currency with to another country's currency. This had a serious economic implication especially when the country whose currency had been used as a yardstick for devaluation decided to devalue its currency against the country that initiated the devaluation. Take for instance, a trade involving two countries, namely A and B which resulted to A having an unfavorable trade balance. This situation will lead country A into devaluing its currency especially against that of country B. The desired effect will be actualized by country A if country B did not reiterate by devaluing its currency. But if it did, it will spell disaster on the expected result of the first country which initiated the action. This was how unfavorable balance of trades was corrected and it got to a point where such actions were no longer needed. This period was regarded as Great Depression period.

However, the situation was saved by the English economist, John Maynard Keynes in 1936 when he came out with the idea of central bank of the world which led to the establishment of the two Bretton Woods institutions, International Monetary Fund (IMF) and World Bank in 1945. Also, Keynes advocated for government increase on spending in order to encourage employment and make people to have money to buy products produced in the country. This will in increase productivity and GDP. To him, people may be paid for digging trenches and re-filling it so they can have money to purchase goods and services produced. This was the idea that saved the world from the downturn at the period and economic activities started booming again.

However, the current global melt-down posed a greater challenge to the modern economists. It is based on this, that we directed serious attention towards looking at what are the characteristics of this current recession, how long will it last, and what are the short term attitudes, and measures that can be adopted by both individuals and government in order to survive it.

The major feature of the current global recession is clear from it name as “global melt-down”. Thus, this leads us to ponder on what “melt-down” is; knowing fully that it is not an economic term. According to the New Webster’s Dictionary of English Language, “melt-down” is a nuclear physics term used to describe “the melting of the protective cases surrounding a nuclear reactor, resulting in release of radiation.”  However, employing this idea to describe an economic phenomenon is questionable. The answer maybe that since this recession has its origin from US economy through its practice of credit crunch, it is sensed that the center of global economy has been touched leading to a release of radiation which spread to other economies attached to this central global pivot system. Furthermore, the release of this radiation by the US economy as a result of the melting of its protective cases has serious effects on global economy especially the economies of the developing nations who have been following the foot-prints of the US and other developed countries of Europe. The great lessons to be learnt by these economies were better experienced than said. Normally, development is a multi-variant concept which centers on how a country can strategically and positively manipulate both human and material resources for benefit it citizens. However, the issue of melt-down has recalled the thoughts of the developing nations towards an ultimate search for proper address of their development problems. It is a wake-up call to all slumbering nations for the challenge of development.

Furthermore, the short term attitudes and measures which individual and national governments can adopt within this period were prescribed bearing in mind that it will take a longer period of time for the recession to normalize since the money lent out by banks in US were very hard to recover. Consequently, individuals around the globe were expected to live and adapt with the situation till its reversal. But, it is only the rightful attitude individuals that are governed by economic discipline and principles that can survive this current disaster. Having in mind that all economic activities revolve around the key central issues of production, distribution, consumption and exchange, it is expected that individuals should show high concern for productivity and as such maintain certain attitudinal disposition towards their consumption. An income-earner should spend his money on products that are necessary which also are close substitute to luxurious products, simply put, inferior goods! In the other hand, producers of these products should attempt to produce more of these commodities to satisfy wants, but must be conscious of the low price level of the goods, thus, more profits are not immediately coming if the volume of turnover were not increased. This is recipe for individuals to survive.

On the part of the government, it is advisable for governments to increase spending to encourage productivity and reabsorb those citizens that maybe thrown out of employment by firms. In fact it is advised that all measures that can help to reduce unemployment be adopted by national governments. More importantly, government should commit more resources on education in order to produce well-informed citizens whose positive contributions cannot be sidelined in the scheme of things. This will generally ensure knowledge and talent managements in the country.

In conclusion, the world is, no doubt today, a globalized one. What touched one nation has scientifically spread to others whether like it or not. The point has reached for nations to come to a consensus on how the affairs of the globe should be steered. The main concern now should also be on how to draft a “General Development Plan” (GDP) that will suite every nation. The melt-down of the world economy is a big lesson to be learnt by developed and developing nations alike. There is no need for demarcation, no need for segregation, no need for isolation. It is one world with many parts like a system. This idea should be front in all global summits with high level of sincerity. Or else we maybe faced with problem that will be complex than recession.   




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    • Daniel J. Neumann profile image

      Daniel J. Neumann 7 years ago from Harrisburg, Pa

      This spells One World Governance.

      It's a practical idea, but power always corrupts.


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