International Monetary Fund Predicts Global Financial Crisis Will Take A Decade To Recover From

"I want all three of our hands together"

It is not yet a lost decade but it will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape.”

 – Olivier Blanchard, chief economist at the International Monetary Fund

The Daily Mail reports:

… with the eurozone crisis threatening to spiral out of control, the US approaching a debt storm, and the global economy slowing from China to Brazil, the outlook remains bleak.”

The Problem With Isolated Analysis

The unfortunate dilemma continually facing the global economy is a lack of unified integral analysis. For instance, the U.S. looks at the Eurozone and seeks to prepare itself for the worst, although not-much-thinking of providing aid. The Eurozone looks to the U.S.’s approaching fiscal cliff and thinks likewise—neither has proposed the need for mutual aid.

In an interconnected world, perhaps most represented in economic relationships, where markets are tied together, and therefore rise and fall in conjunction with one another; the idea of mutual responsibility is so fundamental that it is almost mind boggling that it has yet to be realistically proposed.

If markets remain connected, as they are now, and nations do not think of each other as parts of one global system, which is now in a growing crisis predicted to worsen, then how can it possibly be tackled by independent parties working towards different goals in an integral network?

The Family Analogy

The most simple interconnected group that exists is a family. In a family, we have a mother, father, possibly children, and extended family. The health of the family is predicated by the health of all of the units within it. If there is a baby in the family, it is given extra care. It isn’t asked a question like, “Why do you not go out and earn a living to support us?” It is naturally understood that a baby is a defenseless unit within the family, that it can not provide for itself, but being that it is part of the family, is provided for by the family.

The global economy is today like a dysfunctional family. Using the family baby analogy, we can perhaps look at Greece as a baby. Harsh austerity is imposed on it. Its public sector has been cut, those who have previously not paid taxes are now forced to do so. As a result, Greek depression and suicide have soared, poverty has risen, and the black-market economy has soared. The country is in no better shape now than previously, and the world sits and waits to see if worse conditions will present themselves.

But if the global economy were to act like a family, then it would look at Greece far differently. Obviously, it must grow up, to spend within its means, to not be a burden. But a baby is not asked to go and earn an income when it is unable to do so. The same analogy can be applied elsewhere as well, if it were allowed to, because the interconnection and interdependence of the global economy takes in many members who are strong, moderately strong, weak, and feeble.

In a family, all are equal.

The Need For Mutual Responsibility To Exit The Global Financial Crisis

Because the interconnection and interdependence of global markets does not subside, and because crisis between markets continues to escalate, the need for mutual responsibility presents itself.

When a family does not act for the mutual benefit of the family, all of its members suffer. If the baby in the family is not treated as a baby, but perhaps as the father of the family, then the baby suffers, and the rest of the family does also.

One key problem that exists within the global economy is that each is treated as if they must, “pull their own weight,” as if conditions are somehow equal existing within and between every nation. But they are not. As a result, the global economy continues to not act like a family due to its interconnection and the entire global economy suffers due to this continued calculation.

Mutual responsibility on the other hand, would necessitate each nation within the global economy to think of the needs of all the other members within the global economy. Greece then would not have to suffer such harsh and rapid austerity in order to bring it into line, but would be gently guided so as to not cause the incredible rise of depression and suicide which we see existing today. The U.S., likewise, would not be asked to face their upcoming fiscal cliff alone, and so on and so forth for each nation within the global economy.

But without mutual responsibility, the IMF’s prediction of perhaps a decade to recover from the global crisis is naïve at best. Global interconnection and interdependence is not ceasing, and mutual responsibility, sadly, is nowhere in sight on the current global landscape.

Image: ““I want all three of our hands together”” by emmiegrn on Flickr.

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