FINANCIAL CRISIS BY WASIM ABBAS
Economic activity is the production and distribution of goods and services. This economic activity can be said as business. Economic (business) activity is a cyclic process and can be defined, as it is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables. This cycle consists of four phases1- boom period of very rapid economic activities and high revenues i.e. climax of economic activity. Factors of production are almost completely utilized but due to rise n demand investors keep on investing and at last returns to these investments start to diminish and even diseconomies of scale take place and brings recession (decline to business activity) secant phase of business cycle. Unemployment increases, investments goes down, when recession remains for a longer period it becomes depression third phase of business cycle. In this phase characteristics of recession become really swear. Now the masters of the economy take serious measures for the recovery of sick economy. This recovery phase is actually the fourth phase of business cycle.
Today through out the world economy is in recession and this recession has been given the name of slow motion recession. All the economies of the world are in crisis. Reasons behind these crises are different in different countries. Being the only super power of the world USA’s economy has a large impact on the rest of the economies of the world. It can be stated that recession started from USA when its banking system was going to collapse. A number of big banks and mortgage lenders had been lending 'sub-prime' mortgages, in other words mortgages to people who were bad financial risks and without proof of income, on properties which were possibly not good securities and in amounts that exceeded the valuations of the properties. Collapse of these institutions also affected all the other institutions that had investments with them. The result was essentially a domino effect felt all over the globe. Same situation appeared in United Kingdom as a result all economies start to decline. For the last few years America is continuously on the so-called war on terror. According to a rough estimate World Bank has not created as much loans as expenses have been made in wars against Afghanistan and Iraq. OPAC monopoly in petroleum market has charged many times more than the actual price as a result cost of production has gone up and investments are decreasing day by day.
Pakistan and Pakistani economy is though in recession and even depression since his birth in 1947.Pakistan is the country renowned to be run by foreign aid (dependent growth). In our economy US aid plays a vital role but when USA is in recession means Pakistan is in recession. For Pakistani recession certain other reasons are playing vital role. These reasons are improper utilization of scarce resources, deficit budget due to non-developmental expenses of our government; we are irrational consumers with high propensity to consume, electricity crisis has destroyed our industrial sector, unable to provide peaceful environment to foreign investors, corruption in the collection and allocation of taxes, miserable political situation, hold of few investors in stock market. Another important reason behind our economic crisis is the influence of the government officials on State bank of Pakistan. Due to this influence state bank is creating money many times more than the reserves. Due to this supply of money has gone up and its value has gone down. Conversion of black money into white and our deposits in foreign banks has brought a swear decline in our economic system
Economic activity is the production and distribution of goods and services. This economic activity can be said as business. Economic (business) activity is a cyclic process and can be defined, as it is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables. This cycle consists of four phases1- boom period of very rapid economic activities and high revenues i.e. climax of economic activity. Factors of production are almost completely utilized but due to rise n demand investors keep on investing and at last returns to these investments start to diminish and even diseconomies of scale take place and brings recession (decline to business activity) secant phase of business cycle. Unemployment increases, investments goes down, when recession remains for a longer period it becomes depression third phase of business cycle. In this phase characteristics of recession become really swear. Now the masters of the economy take serious measures for the recovery of sick economy. This recovery phase is actually the fourth phase of business cycle.
Today through out the world economy is in recession and this recession has been given the name of slow motion recession. All the economies of the world are in crisis. Reasons behind these crises are different in different countries. Being the only super power of the world USA’s economy has a large impact on the rest of the economies of the world. It can be stated that recession started from USA when its banking system was going to collapse. A number of big banks and mortgage lenders had been lending 'sub-prime' mortgages, in other words mortgages to people who were bad financial risks and without proof of income, on properties which were possibly not good securities and in amounts that exceeded the valuations of the properties. Collapse of these institutions also affected all the other institutions that had investments with them. The result was essentially a domino effect felt all over the globe. Same situation appeared in United Kingdom as a result all economies start to decline. For the last few years America is continuously on the so-called war on terror. According to a rough estimate World Bank has not created as much loans as expenses have been made in wars against Afghanistan and Iraq. OPAC monopoly in petroleum market has charged many times more than the actual price as a result cost of production has gone up and investments are decreasing day by day.
Pakistan and Pakistani economy is though in recession and even depression since his birth in 1947.Pakistan is the country renowned to be run by foreign aid (dependent growth). In our economy US aid plays a vital role but when USA is in recession means Pakistan is in recession. For Pakistani recession certain other reasons are playing vital role. These reasons are improper utilization of scarce resources, deficit budget due to non-developmental expenses of our government; we are irrational consumers with high propensity to consume, electricity crisis has destroyed our industrial sector, unable to provide peaceful environment to foreign investors, corruption in the collection and allocation of taxes, miserable political situation, hold of few investors in stock market. Another important reason behind our economic crisis is the influence of the government officials on State bank of Pakistan. Due to this influence state bank is creating money many times more than the reserves. Due to this supply of money has gone up and its value has gone down. Conversion of black money into white and our deposits in foreign banks has brought a swear decline in our economic system
1 comments:
Waseem, you must tell something about financial institutions of USA and UK from where , this crises started. But overall it is a really informative article.
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