Global Financial System And The Global Crisis Essay

Global Financial System And The Global Crisis Essay

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By 2030, there will be 10 billion people on Earth. The majority of these people will live in emerging market countries, where economic growth far outpaces growth in the West. This will send shockwaves throughout the global financial system and cause a phenomenon known as the Great Rebalancing, where the balance of global financial growth shifts from the developed world to high-growth, developing countries. In the near future, it will cause both countries and corporations to become increasingly competitive to become or remain a “global power”. For this reason, the Great Rebalancing will create systematic changes in the global financial system, causing governments to practice greater economic interventionism and increase productivity in order to stay competitive, and corporations to expand globally, seeking higher returns that are no longer available in Western markets.
As a result of the 2008 financial crisis and its global effects, many developed countries have turned to unconventional monetary policy in order to combat low growth, unemployment, and deflation. For example, the United States Federal Reserve entered into a quantitative easing program that pumped money into the US economy through government bond buybacks, thereby increasing the money supply and incentivizing spending and investment in US markets. Currently Europe is facing its own economic crisis, so the ECB is considering a similar program in order to prevent deflation and Europe’s further fall into a recession. In Japan, the Bank of Japan entered into an enormous QE program, which increased the country’s debt to GDP ratio to 250%, in an attempt to increase domestic consumption and bring Japan out of deflation.
As the Great Rebalancing comes into effect in the fu...


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... development of developing markets.
The Great Rebalancing will change the core of the global financial system by shifting growth, and therefore economic and financial power, away from the West and towards the developing world, causing changes in government policy and global productivity. In the developed world, as governments compete against each other and seek growth in the stagnating West, central banks will play an even greater role than they do today while governments simultaneously relax regulation in order to promote innovation. Governments of developing nations will engage in structural economic and political reform all in the hopes of reducing risk to support business and sustain growth in the future. This “new normal” will change where capital is allocated, invested, and spent by businesses and investors, changing the global financial system as we know it.

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