Due to the concerned economic environment we are experiencing; the gaze has focused on problematic countries such Greece and Spain and the looming stresses of the global economy that may indicate a future economic crisis and even an excessive economic depression that may seem improbable and doubtful but in fact the event is actually conceivable.
By evaluating possible trends that are identified by six economic experts http://www.cfr.org/economics/five-economic-trends-watch-2012/p26903 and keeping in mind a worst possible outcome, maybe a prudent response strategy can be installed to mitigate or avoid any such threat of a second financial crisis.
In light of the upcoming re-elections the US government parties (Republicans and Democrats) have different views for business cycles and policymaking. Republicans have recently pronounced their view of US policy and believes that a shift away from a Keynesian economy is more prudent (GOP). If we are to consider that Republicans wins the election and congress is replaced they will/may:
- Employ platforms and low ceilings on public spending
- Deregulate banks and reduce government size.
- Reduce tax by a large amount.
- Proposed import tariffs from China or insisting that they allow Yen to rise.
- Remove Labour Unions
This will decrease the governments overall budget, crippling a large economic engine which is stimulating current economic growth. The gap in federal functions and the reduction in borrowing capability will affect public incentive and confidence may deteriorate. Deregulation may impose the same effect as the savings and loan crisis of 1989. http://bigthink.com/econ201/is-republican-economic-policy-devious-or-just-wrong-2. The impact of the Chinese tariffs will increase import prices and effectively inflation. The tax cut and low government spending can throw a frail economy back into depression when unemployment aids and labour unions are needed the most. http://useconomy.about.com/od/fiscalpolicy/p/Mitt_Romney.htm
The centre of global risk is evident in EU countries such as Greece and Spain where the main trend is volatility, largely due to macro-economic risk. http://bonds.about.com/od/advancedbonds/a/What-Is-The-European-Debt-Crisis.htm .
The possibilities to consider: Europe stabilises the dominant debt markets through various reforms and support from the ECB in debt markets to prevent a yield build-up from turning into a liquidity problem. The European Investment Bank has announced they will channel about $1.7bn in funds into infrastructure projects in Greece in an attempt to restart the private sector. http://www.fin24.com/Economy/Ministers-Bank-to-pump-14bn-into-Greece-20120722
From here the Greece can expect sluggish growth and high unemployment, without much government action from the coalition. Consequently keeping the fiscal balance, growth, and unemployment mostly unattended. This will leave the public sector responsible for structural adjustment without suitable support. This may lead to a knock-on effect to other economies that may experience a time of preliminary crises and endure an incomplete growth engine for the global economy.