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Though nobody really knows how the world economic crisis is going to end but one thing is for sure that’ future historians would draw parallels between the current credit crisis with that of the Great Depression’ as there lies extreme analogies between the two. The last pour was the outcome of the First World War and set into motion the Second, just like today’s GWOT’ and changed on its way the realm of economic philosophical thinking and theories that governed the world’ while founding the specter of paradigm for Global Financial System’ whose reign lasted for 80 long years. Just like exceptional growth in the era starting off 2000’ Great Depression also dressed up under the windfall of splendid wealth and strikingly’ both triggered from the collapse of mortgage industry’ resulted in a Domino crumple of Banking and Insurance sectors that lead to today’s calls of sundering the two’ sounding very similar to Steagall Act of last century.

Economies work in a loop’ a closed cycle and its very intriguing that after having sniffed through all the ebb we haven’t yet learned its very bible! The world as we see today ignore and forgets every thing ‘critical might that be’ the moment it deluges into the Nova of pro tempore fringes. Call this greed, passion, ignorance or madness, but the fact remains that’ droves of such aspirations ruined this world over and over again. Shall we learn or should we learn’ sounds ineffectual and abortive without shedding light on causes’ those been botched and forgotten.

The Fed Chairman accuses saving spree of East’ being the prolific ground of fall of the West! But this is just a small fraction of the whole story. Regulators on the western coast foresaw this rising tsunami charging right in their direction and instead of reinforcements they made levies go thin rather melt’ despite incontrovertible evidence of the havoc it shrouded in its seemingly placate torso…and we saw it come, wreak, devastate and level what ever surfaced in its chase. Excessive glut attenuated the interest rates and flooded credit quality with high volatility’ thus ruining and deforming the plinth of global financial solvency. This whole specter of easy-credit got flared up under the shadows of extravagant demand both on the government and public level, catalyzed by the milieu of tampered and manipulated regulations. The sunken tower of yields and gains was already swaying vigorously under the unsustainable winds, but instead of bracing the very foundations’ callous voraciousness and stupendous irresponsibility made this structure go gangling. A fractional hike in Fed interest rate was the trigger that unleashed the unforeseen demolition, making the “statue of recklessness” fall and fall hard. But all the tremors and terminations of century old institutions of the likes of Lehmans and AIGs were just the tip of iceberg, the captain and crew of the struggling Titanic are still not sure of the extent of damage underneath, they are scuffling to save the sinking giant.

The great spill has already ruined the lush interior while devouring it’s the most priciest assets, the team in order to lighten the mammoth of toxic burden has already shifted, unloaded or destroyed tonnage of its ruptured engines. The cost of saving onboard assets has shot to a whooping Eight Trillion, still no effort seems effective enough to bud the great leak. Just a simple loitering has soaked up Fifty Trillion out of the global stock and equity market’ yet prognostication of even greater spoilage looms with blatant conspicuousness. The ripples of this seizure have already jostled shores of the entire world, but would this world come to rescue of struggling Captain and how would they trail the plunging sail? Is yet to be seen. Once out of the tumult’ would the debilitated enterprise be capable of steering the armada of nations or would others be willing to follow the fractured lead?

Muhammad Shafqat

Mar 2009

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Walking through the most precarious times, with Present’ that is gloomier and Future more murky. We are already soaked into the torrents of meltdowns and ruination while augur the clouds of dearth and wrangle. Courses and resources, population and pollution, ideologies and religion, affluent and deficient’ all steaming up to become a perilous fusion’ getting ready to explode’ all at once. We can see the portending clouds heading right in our direction while we stand, forecast and yet prepare for nothing except’ to wrangle our acquittal through the quagmire of economic liquefaction. Thus we stand to embrace yet another era of struggle and scuffle spreading over an age confined only by perpetual imagination…

Every ensuing issue incarcerates a dilemma for human race’ while holding potential for a major spill over and disaster. Population explosion would ultimately dilate the sparking gap between have and have nots, while ensuing the potential for conflicts’ be ethnic or ideological. More the us’ genesis more the need and greed, requiring more land, resources, energy and capacity’ thus paving way for extra consumption, wastage, pollution and deterioration. Already’ we are into heated debates about reservoirs and rivers, age of peak oil, struggle for minerals and land grabs for dwellers. Mother earth for the first time in her billion year existence is perceiving ineffectuality in meeting demands of her inhabitants, who are becoming more of parasite then symbiotic. Can we survive this ruthless journey? We can’t cope with insufficient; can we cope with the absolute Nothing?

Opening Pandora with the imminent energy calamity…

Just like the lending spree that lead to mortgage fiasco and hence an economic turmoil, $40 per barrel also ticks as a stemming time bomb that when explode’ would shiver the substratum of freshly healed global economy! Fall of the Green Back lead the gates for massive investment to flow into the commodity souk, letting oil to stroke unimaginable ceilings, though it has fallen to new depths since but that tumultuous period broke the already fractured global economy’ hit hard by the ruptured mortgage bubble. The spike in oil prices lead those countries who other wise could have survived the global economic seizure’ to bankruptcies because of the massive imbalance of payments. The soaring prices acted as a stumbling breaker that flattened the momentum of an already ruptured engine that had lost its steam by the mortgage detonation. No doubt’ the sudden spike acted as a catalyst in intoxicating the whole system but on the other hand it boosted leverage of energy industry that suddenly saw massive capital flow for advancing exploration and development of under and undeveloped fields. In this close system of ours’ dilemma for one is a boon for other, and so is the other way round!

As we stand today on $50 ground’ the situation is equally perplexing, artificial and unsustainable as the previous one. Firstly’ damage the spike had done was acute enough to knock off the consuming impetus out of the system, strengthen by the collapse of financial order, thus no matter how thin the price gets’ its not going to comfort the pain of credit squeeze. Secondly’ every single day where the price stays, makes our future ache! Each dollar below the 70 threshold strains our future energy exploratory endeavor, thus defying present while dashing our future. Its been more then a decade that global oil consumption outstripped supplies, we consume more then discover, even if we discover’ the uncover barrel costs more to explore, gouge, process and dispatch then ever before. Three decades have passed since a field been explored to produce million barrel a day…But the real showdown would begin the moment global economy would bounce back, when demand would severely outstrip all previous supplies and capacity incapable to meet the desired urgency.

Muhammad Shafqat

Mar 2009

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Last century is mired with hordes of Financial turmoil that inflicted discomfort and vex to the global and regional economies one after the other. The new century though commenced with the fervor of prosperity and success’ suddenly despite in the presence of complex forecasting models and all the incumbent rules and regulations’ fractured to surface the faltering underlying snags in the financial tectonic plates that now carries the entire world. While such crisis can not be halted altogether, the crux of redressing the current problems should be to cripple the momentum and magnitude of the next financial tremors. Thus the intention behind the transformation of the economy’s body language should be Better Regulations along with strict implementation rather then the tirade of more rules. Especially the realm of Micro-Regulations in Base 2 should be added on with Macro-Regulations that honors the phenomenon of developing through the roots rather then form superficial tissues.

The world has seen more then Hundred Banking crisis but each time these are the bankers who are chided, emergency plans are put into place to cover the loop holes and the story starts again after filling the last ditches without identifying and erecting the most fundamental causes that unfurl the fault lines again. The current quagmire is just an extension and re-happening of the very fundamental and yet inevitable boom burst cycle. These are the banks that render successes and yet fail the Capitalist structure (Predominant system ruling the global economy), thus protecting them is not only vital for health of any financial system but it failure bodes evil for the entire economy, thus regulations which can not halt the collapses are worthless at best. And the root cause of banks crashing out when the social cause of Systemic financial crumple surpasses private cost to individual financial entities. Thus the new set of rules should be such that to transform these externalities to get internalize! Desist the Fall out…

There has always been a tendency to reshape the regulatory system before pondering into complexities of regulatory controls. But it is quite the opposite; the regulations should be erected to project the purpose and reach of the regulatory authority. There also lies difference in the needed professionalism to cater to Micro/Macro prudential regulations, while the former be carried by FSA, the later should come under the domain of Central Banks.Thus a more collaborative, integrated and consolidated approach world wide, first to stabilize the highly turbulent system form spilling more disaster and then to strengthen it on new foundations.

Muhammad Shafqat

Feb 2009

Economic exigency and lack of vision devastated the Big Three’ thus putting an end to the era of Detroit

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The Great Depression gave the Second World War and the preceding Bretton Woods, thus set the foundations for a global financial system that lasted 20 short of a Century, until it broke down to child the Depression of 21^st Century. Whether this would also lead to wars is not known, but how it is going to alter the panorama of world financial architecture is being seen with great contemplation’ with vast changes bound to alter the realm of economic theories, institutional structures, global architecture of integration and concurrence and the philosophical outlook.

World has been towing the lines and reaping benefits form the promulgation of Neo-Classical theory, a sharp contrast form the Great Depression, that now stands as a failed adventure. The crash has swallowed almost all the gains that the booming decade of growth, wealth and well being gave to the people of this world and ramshackle the once roaring juggernauts by pushing them into retreat, isolation and dire help. Thus arising from the very free market wisdom, the US and EU fallen back again to the Gold Standard, marred with deflation. This was the failure of theory that gave an inducement to Keynesian economics, the notion under which Governments use Fiscal policies to stimulate growth and confidence when monetary measure fail to promulgate gains.

Looking at the Global horizon one can see the conflicting zones of Surplus and Deficit economies (former excessive savings is reasoned to be the cause of low interest rates, the case of massive liquidity and thus an impetus for degenerated credit quality) Thus a vicious cycle of money being poured by the tech adopting, exploding economies into deficit black holes (US being importer of Foreign Capital at $4 billion per day), giving rise to high corporate savings which were unable to balance out the surging deficits, thus leading to a severe Global capital Imbalance. Clearly deficits on such massive scales are unsustainable, since the collapse an estimated $27 trillion has been wiped out of the Global stock market, 40% This crisis undoubtedly is the result of human excesses, it’s an event tough not separate but the preceding reforms, restructuring, and reallocation and realignment is a continuous process that should not get stopped. It tends to make us focus an think of different facades of disruptive trends generated over the years through a very short window of opportunity that lasts until the pain, but soon as it closes so does the resurgence of vested interests that again takes the reformed body over to seep and infect, paving ways for the next paralysis.

Derivates carry in them leverage that harbors risks, and risks get transferred but do not diminish. Problem is the lack of understanding about the very nature of derivates; it is essentially the representation of basal assets those are linked through leverage. Their forms are only bound by imaginations, as it can take up any shape, thus higher the shapes (as happened in the US with the rise of CDS market) more complex its relation with the underlying platform becomes making its pyramid dynamically more profitable but at the same time even more risky. Such that is the underlying assets become troubled, the whole pyramid begins to crumble. And it is this instability in finance that it should be heavily guarded with regulations’ but as happened in US where the whole derivate paradigm was let to swing with the market forces with no regulated frame work to support. Yes the forces acted and made it grow tall enough to shiver and fragment on its own splintery base’ thus smashing it down with others’ on all…

Muhammad Shafqat

Feb 2009