MONEY MATTERS

All the nations are borrowing to help its growth but it is true that the growth is on a shaky foundation and has lead to the fall. The crisis of the past two years has exposed vulnerabilities across the entire global economy. During the fat years in the middle of the decade there were clear warning signs of trouble which were ignored. Ultimately, the global imbalances, the build-up of personal debt and the willingness of the banks and other financial institutions to take ever bigger risks in search of high returns did matter.
Debt was required to work and this borrowed money was used to cover the deep structural problems of modern global capitalism. The interest rates for borrowing was so low for households that lead to a housing bubble and when that bubble burst, the governments had a choice. They could sit and watch a severe recession worsen as companies and individuals repaired their finances by paying off their debts, or they could borrow more themselves. They took the second option, allowing budget deficits to take the strain as growth collapsed and unemployment rose. Policymakers are hoping a renewed appetite for debt by firms and households will enable governments to cut borrowing without causing a second leg to the recession.

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