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Global Financial Crisis

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Over the past 30 years the globalised economy has been predicated on unending expansion, and many argue that the resulting wealth is in fact illusory. Whilst economic expansion remains the goal of a growth-based economy, inflation - its antithesis - is paradoxically an inevitable consequence of economic growth.  The battle to keep inflation low has become a major preoccupation for governments the world over.

Financial Speculation

Financial speculation on the world's stock markets has increased dramatically over this period, particularly foreign currency speculation, as have the number of financial products and funds available to speculators looking for rapid returns on their investment. The movement of capital around the world now accounts for a large percentage of economic growth, although this growth is increasingly detached from the production and consumption of goods.  It remains based on the assumption that the increasing levels of debt can always be paid because the economy will always expand - and this applies equally to people, corporations and governments.

Economic destabilization

As recent history confirms, the rapid flow of capital in and out of developing countries often destabilises their economies.  Since the financial crisis which began in Thailand in 1997, the inherent instability of capital flows has been globalized with disastrous consequences for other countries in S.E Asia, Latin America and Russia.

The credit crunch in the US and UK is the most recent manifestation of this international financial instability, and is a direct result of under-regulated international speculation using sophisticated debt-based financial products. The phenomenal hikes in food prices that are widely reported at present can also be attributed in part to stock-market activity, as traders buy up huge quantities of scarce agricultural produce, not primarily for consumption, but to speculate with - which increases demand and inflates the price of these essential goods.

Currently, the specter of prolonged recession haunts the US and many European countries as productive industries stagnate in the face of strong industrial advancement in the developing world. Given the primacy of the ever-weakening US dollar, mounting levels of personal and national debt, and the credit crunch, progressive analysts maintain that a full-blown international financial crisis is inevitable, and has only been temporarily delayed by swift but costly government intervention and strong economic growth in India and China.

Who Benefits?

This state of affairs suggests that the main beneficiaries of speculation in a debt-based globalized economy are financial traders and the lenders of credit, who recoup significant profits, as well as multinational corporations who thrive on this credit to expand their commercial activities and promote consumption. The bulk of humanity, on the other hand, continues to struggle with mounting levels of debt, diminishing opportunities for employment, and higher food prices.

The continued expansion of commercial activity that the endless availability of credit affords has other dire consequences for the planet which have only recently been taken seriously.  These include the over-consumption of natural resources, climate change from ever-expanding production and consumption, and the cultural homogenization of society around the world.

Downsizing the Market

As financial instability plays out on the world stage, it is likely to become increasingly apparent that a stable and more equitable system of finance must be a key feature of a sustainable future economy. The role of money should be overhauled so that it works to facilitate the global exchange of goods and services without unduly rewarding those private interests which control it. A small tax on financial speculation, such as the Tobin Tax, would go a long way to reducing the damaging effects of short-term speculation whilst simultaneously creating a fund which can be used for any number of humanitarian purposes.

A further suggestion would be to limit the type and quantity of resources which are traded and speculated upon in financial markets. If essential resources such as oil and gas, and basic agricultural produce such as rice and wheat, are produced not primarily for profit but to ensure that basic needs are secured around the world, then the market speculation and price fluctuations of these essential resources would be significantly reduced, imparting a particular benefit to those in the developing world.