By Dr Adil Rasheed
To many Indians, fall in the price of oil has come as good news. But an abnormal, precipitous fall in any asset class or commodity is as portentously disturbing as an unusual spike in its price. One should remember that after the price of oil rose to around $150 back in the summer of 2008, it had fallen to less than $50 by mid-September that year which led to a big crash and the subsequent Great Recession.
The world and global financial institutions resorted to many quick fix measures in the aftermath of the financial crisis, such as lowering of interest rates to near zero and pumping in astronomical amounts of liquidity to ebb the deflationary strangulation of the global economy. The policy worked somewhat, but the structural anomalies of excessive debt generation and the excesses of derivatives trading were not tackled effectively. The same problems fundamentally bedevil the global economic system till date.
Excessive speculation on commodity trade, particularly in oil and food products, in addition to problems of excess production and falling demand in troubled Europe and a weakening growth rate in emerging markets point to the imminence of a new crisis. In fact, some experts contend it is already upon us.
The dramatic fall in the value of the Russian ruble is now having a cascading effect across several Asian and Western economies. There is a danger that major debt bubbles might pop, be it in the Chinese property market or the US treasuries itself. Questions are also raised one whether one country’s currency should remain the reserve for the global economy, given the US’ astronomical amount of national debt and unfunded liabilities, which is more than the global GDP. The time has come for a serious rethink.
For more on the dramatic fall of the ruble and its aftershocks please click the link http://www.ibtimes.com/russian-ruble-crisis-spreads-across-us-emerging-markets-bric-nations-1761852