January 10th, 2018
How the UK can Overcome 2008 Global Economic Crisis
One of the immediate actions by various governments following the bankruptcy of institutions that were considered “too big to fail” was public bailouts (Kenc & Dibooglu 2010;Medley 2009; Rotheli 2009; House of Commons 2008). Although such has been argued was necessary to avert complete loss of confidence with economic systems thus the effect being more pronounced than was witnessed (House of commons 2008), the effect of such bailouts of promoting imprudent practices among the big corporations could result into unfavourable economic outcomes in the long-term (Rotheli 2009, Medley 2009; Weiss & Larson 2008). Additionally, such strategies have resulted into massive fiscal deficits thus affecting the extent to which the governments can use fiscal alternatives to reduce the gravity of the economic crisis (European Communities 2009).
With the noted disadvantages of public bailouts, various alternatives could better the recovery efforts. One of the strategies that could avoid the collapse of financial institutions thus avoid reduced financial intermediation that provides momentum to the crisis is increased requirements for deposit protection. In the US, for instance, Goodhart (2008) suggests that increasing the deposit insurance would help identify institutions that are performing poorly, thus initiate corrective measures in a timely manner, when political and social consequences would be less advanced (p. 352). Such an initiative has also been supported in other studies (Weiss & Larson 2008), but one of its challenges is that it could provide an incentive to the regulators to be complacent with organizations that have attained such required insurance provisions (Hanc n.d).
A second strategy that could help avert economic crisis is the strengthening of the regulatory institutions and frameworks. Such is noted with the antecedent of 2008 financial crisis being identified to imprudent practices of financial institutions thus questioning the ability of the financial institutions to self-regulate (Rotheli 2010; Kirkpatrick 2009; Weiss & Larson 2008). With regard to framework, regulatory framework could incorporate requirements for additional disclosures that currently may be bundled in such aspects as off-balance sheet events thus offering a misleading position of an entity’s state of affairs (Rötheli 2010). Accordingly, such a financial policy could function effectively at the prevention stage, averting the progression of the crisis into (European Communities 2009).
Another initiative that could alleviate the crisis is the application of correct monetary and fiscal policies (Percy ed. 2006. In this regard, Krugman (2010) for instance, notes of the misapplication of a contractionary monetary policy in such places as Greece, in times of economic adversity. Whereas the application of an expansionary policy in time of crisis has beneficial effects in the short run, over application of such a policy even when the economy has returned towards a growth trajectory may result into imprudent practices thus reverting the economy back into a slump (Colander 2008). Therefore, effective monitoring of the prevailing economic condition is important to ensure that the government initiates and applies effective monetary policies in a timely basis to avoid their effects resulting into adverse economic outcomes. Similarly, fiscal policies tied to spending or production plans could have a temporary effect of increasing demand in the economy thus creating the impetus required to elevate the economy from a downward retrogressive cycle (European Communities 2009).
Eventually, addressing economic crisis will require the establishment of principles that encourage social responsibility in society. Such initiatives for instance include creating employment opportunities on a flexible plan that allows many individuals to work in shifts and encouraging ethical leadership attributes among corporate governance ladders (Medley 2009). Additionally, such ethical principles ensure that a large gap does not exist between the rich and the poor (Medley 2009). Go to the conclusion here.