Global Financial Meltdown and Pakistan

How grave is the Economic Pandemonium?

In the recent past, the global economy achieved a very high growth rate of over 5 percent. The success was said to be the result of the free market economy in which floating national currencies adjusted their mutual equivalence through the market mechanism and globalized international trade. At the back of this free market set up stood the US capitalism with its mighty investment banks and huge insurance companies. With a powerful economy producing $14 trillion annually, its economic superstructure stood like a solid granite rock without the possibility of collapse. This overconfidence in the strength of the economy led to unprecedented consumerism not on the basis of the earned incomes but bank borrowings and mortgages of assets and property, as a way of life. The age-old wisdom of saving for the rainy’ days was completely forgotten because the rainy days were not supposed to show up ever. This contagious disease of foolish wishful attitudes also traveled to the US-linked economies of European countries, Association of South East Asian Nations (ASEANS) China, India, Pakistan and some of the Latin American countries. The culture of universal consumerism created all kinds of demands that could only be satisfied by spinning the industrial wheel faster at home but also giving a boost to agricultural and industrial production abroad among its partners in the international trade. Incidentally, the developed and emerging economies were enjoying continuous trade surplus with the US and therefore could indulge in the luxury of consumerism freely by contracting mortgages with their banks for everything they needed under the sun.

This was an ostrich-like faith in the absolute viability of the system because a similar crisis had earlier hit South and Far East Asia during the closing decade of the last century The stocks had tumbled and currencies depreciated steeply. The big business houses that had flourished on borrowed money collapsed and many banks went bankrupt because they could not recover their loans. Many wealthy people ended up as paupers. The industrial activity came to a grinding halt leading to large-scale unemployment. It was so because under conditions of free economy banks had gone wild to lend huge amounts to big borrowers to reap whirlwind profits. They did not care to get necessary safeguards against unexpected events that could turn the tide of affluence into impoverishment.