History of 1998 is repeating itself in the finance market. As the developing economies are playing bigger roles in global economy, the borrowing cost of the advanced world is showing a downward graph.
Burgeoning markets like, India, Indonesia, Russia, Thailand, Turkey, Brazil, South Africa etc. are more flexible as the possess $9 trillion of reserves. However using this treasury for defending the trade rate may lead to financial crisis. During early 1980s, the market share of growing economics was less than 15 per cent of global Gross Domestic Product. That was certainly not a very favorable time for the Western banks. The world noticed the crumble of Latin American nations as the Volcker Fed implemented rules and regulations regarding its financial transactions.
By mid 1990, the entire economic scenario underwent a change. With the communist countries joining in the bandwagon, the market share of the third world countries has grown considerably. This made the chairperson of the Federal, Alan Greenspan discover that they consist of nearly a third of GDP. Evidently, the federal had to reduce the rates in the month of September. However, it did not prove to be worthwhile as the monetary crisis was unavoidable in East Asia and the pre-EMU in Europe back geared severely. Greenspan took the step to elaborate on the matter to the federal governors urging them to respond to the Jackson Hole conclave. The New York Fed too tried to control the crisis in October 1998 by recovering the hedge fund Long Term Capital Management. Alan was skeptic whether their safety measures would be enough to control the total collapse.
According to the latest report of International Monetary Fund, The burgeoning market consists of half the world’s economy. Hence, the market share has transformed to 1:1. The financial expert aptly comments that the BRICS are in the explosion stage regulating the economic revolution. The Feds shrug away themselves from the emerging market disorder. They further upheld that the respective countries would have to take the responsibilities to safeguard themselves from financial disasters. Dennis Lockhart, the chief of the Atlanta Fed suggested that the countries should try to adjustor them. There is no panacea to treat the cause of monetary crisis.
Many financial institutions over the years had made a series of errors that not just added to the existing problem but also failed considerably to solve the issue. Like it failed to surmise how Lehman crash initiated a global economic crisis. Besides, the banks played a significant role in EMU debt crisis. A close inspection on the market scenario shows that the most important reason why the net capital channelize into the emerging market. The zero rates and the quantitative easing are the two main reasons of dollar liquidity inundation. The valuation doubled from $4 trillion to $8 trillion, as a result.
Many countries were not able to handle the crisis quite successfully. Countries like, China faced a low return on loan growth, which is 0.17. India, Brazil etc. faced the same consequence. US cannot be blamed for their failures. The feds are the savior of the world. Therefore, they must take control of the situation rather than ask other countries to adjust to them.