Global Economic Crisis: An Empirical Study on the Diverging Scenario of Emerging Economies Post Crisis

The global crisis, that began in July 2007 with the credit crunch, is considered by many economists the worst financial crisis since the Great Depression of the 1930s. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U. S. dollars, and a downturn in economic activity leading to the 20082012 global recession and contributing to the European sovereign-debt crisis. With half a decades hindsight, it is clear the crisis had multiple causes. The most obvious is the financiers themselvesespecially the irrationally exuberant Anglo-Saxon sort, who claimed to have found a way to banish risk when in fact they had simply lost track of it. The Great Moderationyears of low inflation and stable growthfostered complacency and risk-taking. The Feds defenders shift the blame to the savings glutthe surfeit of saving over investment in emerging economies, especially China. That capital flooded into safe American-government bonds, driving down interest rates. Low interest rates created an incentive for banks, hedge funds and other investors to hunt for riskier assets that offered higher returns. The low volatility of the Great Moderation increased the temptation to leverage in this way. If short-term interest rates are low but unstable, investors will hesitate before leveraging their bets. But if rates appear stable, investors will take the risk of borrowing in the money markets to buy longer-dated, higher-yielding securities. That is indeed what happened. Likewise, this study tends to focus upon the long sustaining issues developed from the crisis and analyzing the prospective future trends to the growth of world economy as a whole.