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The ongoing effects of the financial crisis of 2006 to ?

January 17, 2014

One of the major influences on the next decades will be the financial crisis which started in 2006 and its aftershocks.

16 Jan 1

The scale of the US bank bailout

Source: Beyond Crisis, Ringland et al, 2010

The sequence of events is well known and described in more detail elsewhere (Ringland et al, 2010) and (Tett, 2009).

  • Consumer debts in the west grew, financed (in the case of the US) by investment from China;
  • A number of financial vehicles proved to be more risky than advertised and collapsed, taking with them a number of global financial institutions;
  • The debt was essentially transferred to governments through bank bailouts (see Figure 2.1), adding to rising government debt from social payments;
  • Western governments are now (in 2011) cutting services and consumers are trying to pay down debts because of concerns over jobs and stagflation.

How might different countries develop in the short to medium term?

Two dimensions of uncertainty

In the short term, the financial crisis and countries’ exposure and reactions to it will dominate the global picture. There are in fact two strands to the financial crises that affect the environment for organisations in the short term. The first one revolves around bank liquidity and the overhang of the bank bailout. The second is the issue of consumer debt, the way in which it gets repaid and the potential for large scale defaults.

If we consider the effect of these two strands separately, a two dimensional image (Figure A.2) helps us to see the future more clearly.

16 Jan 2

Figure A.2: How might the financial crisis be resolved?

On the horizontal axis, we show the possibility that the banking crisis is either central to future events or merely a part (though an important one) of them. Consumer debt is very important in some (OECD) nations but less so in others, for instance in Asia.

The vertical axis explores how quickly the banking aspect of the crisis is resolved. This is likely to depend on factors which are different according to country, region or type of government. Figure A.3 populates the same matrix as in Figure A.2 with some representative countries based on the current position and anticipated trends.

16 Jan 3

Figure A.3: What could happen in different regions?

Source: Beyond Crisis, Ringland et al, 2010

The future looks bleak for the United States and Europe but is there a way out? Could a new technology, or a vibrant economy, act as a centre of growth? Futurists often speculate about the effect of new technologies and we outline a few such speculations in the section below. Technology will continue to create new industries but there is no obvious replacement for the US consumers, with their credit cards, as the motor of growth in terms of sheer size of purchasing power. Economic conditions will probably be sombre, and turbulent, in the short term.

As we look further ahead, it is likely that different regions will start to move at very different speeds. The reason for this is that, over the past two decades, the world has been undergoing rapid, deep, socio-political and economic change. Yet these deep changes have been masked by a superficial social and economic consensus: a rational, market-oriented, democratic, secular-humanist view of the processes of dispute settlement and of the nature of international relations. 

Written by Gill Ringland

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