Although there has been a shift in the global economy after the financial crisis that occurred a decade ago, there are still remnants that the measures taken to alleviate it have left behind.
A decade has passed after the end of the global financial crisis which began with the fall of the Lehman brothers between September 2008 and March 2009. With over $5 trillion in losses, fall in market capitalization of the S&P was more than 54%. With such a great fall in the US market, the government was forced to put the federal home loan mortgage corp. and federal national mortgage association into a conservatorship, meaning legal guardians were appointed to run the affairs of the government agencies. This created the steepest fall of 5.3 in the world GDP, the highest after the second world war.
Current situation of the financial market
With the completion of a decade after the greatest slump in the world market in post-war times, almost the whole of the US market has gained a lot economically. The overall economy of the US being 40% larger and, the unemployment and corporate profits reaching the lowest compared to the past 50 years, there are no signs of the great financial crisis on the outside. Many street banks and high consumer leverage were hit badly during the slump, but have reached a 40-year low from the 40-year high state observed almost a decade ago. The main reason for the major recovery of the world financial markets was due to the intervention of central banks that cut down the global interest rates to a low value.
Effects of the countermeasures taken to fix the financial crisis
The major reason for the fast recovery from the financial crisis was due to the slashing of global central bank interest rates. But such a big task does not come without a price. The overall debt of the global population owed to such global banks has increased to around $250 trillion from its value of $37 trillion a decade ago. Out of the total, about 25% of the money owed is government debts. With the US, China, the Eurozone and Japan constituting almost 70 percent of the total world’s debt, a mountain of growing debt has still not become a major problem due to the low inflation rate and strong demand for US treasury bonds with limited interest rates. With almost 70 percent of the federal debt maturing within the next 5 years, there is a need for refinancing at a higher rate, which in turn will affect government spending priorities and also the global financial market. With the latest Trump government enforcing new tax reforms, there will be a further deficit in budget forcing an increase in borrowed money. With such a growing amount, the US government will have to spend more on servicing the interest than on Medicaid and defense in the future.
Although the dangers caused by the previous financial crisis have been averted, there is an increased danger with limited options available to face another one in the future.