The World Economy

Trillions of dollars of created wealth simply evaporated as stock markets collapsed across the globe.

The major economies are weak. The U.S. is grappling with high unemployment. Much of Europe is on austerity mode, part of the ground effort to curb public indebtedness. Even China, expected to lead the global recovery, posted a decline in manufacturing output the last quarter. Calamity prone Japan is nursing a public debt twice the size of its GDP. Then there is Greece.

For months, the European Union tried very hard to keep Greece from defaulting on its debts. Several bailout packages have been put together to help Greece avert default. Those costly bailout packages were put together not so much to save the Greeks but to prevent a shock to the European banking system heavily exposed to Greek debt.

There is a radical stream of opinion regarding Greece that is actually gaining ground in Europe. Some have concluded that Greece is beyond help. The only viable option is to cut-off Greece from the Eurozone forcing the nation to return to its old currency, the drachma. By forcing Greece to return to its own currency, the rest of the Eurozone might be spared from the contagion. It is pretty much like cutting off an infected leg to save the person.

The U.S. is wrestling with its debt concerns and poor growth which Europe’s sovereign debt crisis threatens to bankrupt Greece and place Italy in similar position. For the moment, market performance hinges largely on global issues but discussing investors should watch oversold stocks.

Europe, Japan, and the United States must act to address their big economic problems before they become bigger problems for the rest of the world. Not to do so would be irresponsible. Some of the largest impacts to poorer countries would be felt through a decline in global trade and commodity prices. $6.1 Trillion was wiped out globally in stock market declines over the past couple of months which is equivalent to 10% of global GDP.

A meeting with finance leaders from emerging market economies – China, India, Russia, South Africa, and Brazil called for decisive action by advanced countries to tackle the deterioration in their economies.

By: Joey E. Clarin

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