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It is imperative to state that the international economy is experiencing a prime recession. A worldwide financial catastrophe has stalled economic activity and affected universal growth (Brown, lax, and Petersen, 2010). There has been considerable deterioration in offside endowment conditions due to risk aversion. The majority of the economies have experienced complexities in external borrowing expenses.
There is the transmission of liquidity and pricing strains in worldwide funding markets. Moreover, tighter credit is diminishing private investment when there is a requirement of substantial investment to fund precedence development needs (Angkinand, Sawangngoenyuang & Wihlborg, 2010).
However, the general situation causes substantial concern. Weak growth and tight credit conditions have the capacity of cutting into the government’s proceeds and governments’ capability to invest in infrastructure, and meet the education and health goals.
Response to the crisis
The international financial institutions are extremely beneficial towards overcoming the challenges resulting from the crisis. These institutions have the capacity of being an integral part of a harmonized and hasty program of action. This forestalls the crumple of banking, and clandestine sectors in mounting countries (Centro de Estudios Espinosa Yglesias, 2010).
These institutions can provide consultative services to assist countries prepare for and retort to monetary sector crises, assess susceptibility, reinforce policy, and authoritarian frameworks. Moreover, they can still provide short-term finance inclusive of trade finance, and give capital to susceptible banking systems.
Provision of this capital can be direct through clandestine operations or indirect through government programs that support bank recapitalization (Centro de Estudios Espinosa Yglesias, 2010).
It is worth denoting that these institutions can still prop up the developing countries by offering guarantees, to foreign banks or clandestine investors in order to encourage them back to budding markets. Another way of dealing with this crisis is through managing fiscal challenges (Rose and Spiegel, 2010).
It is imperative to state that through the budget prop up, these institutions can assist partner countries fund their deficits, alter their expenditure and income policies, in order to consider the priorities and pressures resulting from the crisis, particularly by ensuring that fiscal adjustment considers the needs of the underprivileged.
The technical assistance can supplement this work in order to reinforce management, lucidity, and responsibility in public finances, thereby ensuring efficient use of scarce resources (Rose and Spiegel, 2010).
Securing long-term development is another mode of combating the economic crisis. A substantial critical role of these institutions is assisting the developing countries lessen disturbance to continuing development programs and projects.
This is inclusive of helping governments prioritize their resources and ensure maintained external funding of continuing, and premeditated development projects and programs (Stiglitz, 2011). The escalating pressure on government resources and the significance of fiscal stimulus prompts these institutions to support extra programs and projects in human development.
It is worth denoting that these institutions are responding to this crisis by offering balance of payments support, raising the lending levels, sustaining the recapitalization of banks, and development of trade funding (Stiglitz, 2011).
Because of the escalating mortality, the government and corporations are not in a capacity to pay for the constant increasing pension costs. In the present economic environment, the squat interest rates and capricious equity markets have further exacerbated the pension deficiency.
In order to control the pension contributions, there is a need of cutting pension benefits from the present and prospect pensioners (Stiglitz, 2011).
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Essentially, the present trade deficiency in America symbolizes an imbalance in production and consumption (Love and Zaidi, 2010). The sanguine economists contentedly downplayed this imbalance. However, the world is searching for a substitute to the US dollar as a reserve currency.
There is a necessity to correct this imbalance in the coming few years by rising production in order to consider the US dollar as the indisputable reserve currency for the globe once again (Love and Zaidi, 2010).
It is imperative to state that shareholders are constantly borrowing to cogitate in the stock market in order to increase their returns within the shortest time. The squat interest rates, simplicity of online trading, and minimal transaction costs have twisted the stock markets into large casinos.
The rules instituted to protect the shareholders will only be effective if the shareholders have a possessive interest in the long-term feasibility of the corporation (Love and Zaidi, 2010). Moreover, if the shareholders continue speculating with unreasonable enthusiasm, no rule will have the capacity to protect them.
The state and federal governments have trillions of dollars, both visible and hidden debts in order to cover the Medicare and government pensions (Love and Zaidi, 2010). It is worth denoting that all the three government levels rely on the same taxpayer in order to pay off this debt with substantial interest. The majority of the businesses are under debt, and they rely on the same citizen in order to consume the products.
Therefore, each consecutive debt layer becomes increasingly expensive. It is a prerequisite for all entities to manage their good debt and take adequate steps in order to eliminate bad debt (Love and Zaidi, 2010). In addition, there is a need to cut this debt before it starts drawing countries towards the debt vortex.
To deal with squat interest rates, companies need to incorporate equities in their assets portfolio to sustain their liabilities (Love and Zaidi, 2010). Apposite regulation will thus force companies to pass the expense of squat interest rates to the buyers.
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