With the global economic recession taking a toll on developed countries there is a growing sense of uncertainty that is gripping the majority in the west. Just like the calm before the storm, the uncertainty has lent itself a sound that is almost palpable and rightly so. People are worried not only about their future, but are also considerably perturbed over the future of their children, that they fear might end up worse off than them. Unfortunately, like mentioned earlier, this is merely the calm before the storm.
The US is having a tough time, trying to pave way for its economy to return to the path of high growth coupled with vigorous job creation. As a result of this meltdown, thousands of people have taken to the streets of the US, with the clamour for a just economic order growing with every passing day. As things stand, the winds of change have already begun with protests against the financial imbroglio, claiming two governments and simultaneously replacing elected representatives with technocrats who are expected to get things in order. As fears rise, so does the concern of the institutional integrity of the euro zone.
What is now being witnessed is that this uncertainty is not regional, but extends well beyond the realms of countries and states. All the changes taking place today, point out blatantly towards paradigm changes that are shaping the global economy and more importantly towards the anxiety that is resulting from the loss of faith in what were once thought to be dependable economic, financial, social or political anchors.
It will take time, to restore faith in these anchors and there seems to be no clear roadmap on what needs to be done, and certainly history at this crucial juncture in time, provides little inspiration. But what mostly stands out is the fact, that different countries have realised that their destinies can never be in harmony with the rest and hence seek different outcomes out of necessity, while the challenge the global system as a whole faces is how best to reconcile the challenges.
In predicting the future of these states, one that precariously hangs in balance, we can employ a simple analytical framework to comprehend what can be expected and how these countries can best adapt to the troubling times that are headed their way. Using this simple analytical framework it may be prudent to observe that the future of the global economy will be shaped by the ability of different countries to manage financial, social and political dynamics.
The first ability relates to balance sheets. What many western economies are now struggling with, is a severe debt crisis that has been fueled over the years by excessive borrowings, especially when the governments could not sustain them with economic growth. Faced with this reality, countries will now be faced with a multitude of de-leveraging options. On this account, differentiation is in fact more than evident.
De leveraging is then closely linked to economic growth. Those countries that have a stronger ability to generate additional national income have a greater ability to meet debt obligations while at the same time maintaining a certain standard of living for its citizens. The final variable is the role of politicians and policy makers. The longer the policy makers fail to adjust, the greater the risks they will be exposed to. As far as those on the receiving end of the spectrum are concerned, ordinary people, the proletariat, they need not be paralysed with anxiety. Instead they should use the simple framework to monitor developments, imbibe from them and most importantly learn to adapt. Most significantly a global paradigm shift, one that is being drafted at present does not merely present risks but implies a change in opportunities as well.
The writer is a professional banker and financial commentator
