Case study

The article focuses on the imbalances in the global flows of capital and trade which has triggered economic crises in different parts of the world. It goes ahead to explain measures that can be used to curb the imbalances such as manipulation of the currencies. This measure would prevent countries from manipulating their exchange rates to gain an export advantage. Te article however faults this method arguing that singling out some countries because of heir surplus will be only be dealing with part of the problem. There are so many ways that a country can have a surplus for example the article notes that China built up their surpluses by holding onto the wages of  workers.   The writer however notes that the capability of this method to reduce the global imbalances should not be overstated even if it is a good step towards solving the issue at hand.

During the course of my study, it was quite clear that economic global crisis actually was largely influenced by global imbalances in the capital of different countries. Some countries like the US spend too much while countries like China spend too little. This means that by the end of it a country like the US will have deficits and China will have the surpluses. The deficit reflects a falling saving rate, which means a country, is not saving enough.  When a country increases in their saving that will mean they will improve on ther foreign exchange reserves, which will provide future, respond of payment.

The America recent global crisis might have been caused by the deficit it has as compared to the surpluses the other countries have. Global imbalances are however not likely to go away soon and economists need to come up with a way that will completely eradicate this crisis. However, with measures like the currency manipulation, there is hope that the issue of global imbalances will finally be settled. The article is therefore eye opening to the current state of affairs and how they can be solved.

Reference

Swanson A. (2015) This is the Major Global Economic Challenge of Our Time ( And We Have No Idea How to Deal with it) retrieved from http://www.forbes.com/sites/anaswanson/2015/01/28/this-is-the-major-global-economic-challenge-of-our-time-and-we-have-no-idea-how-to-deal-with-it/#690ed63e31fc

 

 

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