Four Years After Lehman Brothers, Global Economic Recovery Still Faces Challenges

As of the 15th of this month, four years have passed since the Lehman Brothers collapse. However, the global economy still can’t get out of the recession. It’s anybody’s guess whether the supplementary measures decided on by the central banks in Europe and the U.S. will provide a way out.

The Federal Reserve introduced quantitative easing (QE3) by supplying large amounts of money to the financial markets for the third time, which was done previously in 2008 and 2010.

The plan is to buy $40 billion mortgage-backed bonds every month. They also laid out their plan to keep interest rates near zero until “the middle of 2015,” an extension from the previous timeline, which would have concluded “by the end of 2014.”

Striking out with this bold plan by using this trump card, they aim to boost the economy which will help increase employment numbers. It will be like giving the sputtering economy a push on the back.

Lately, economic indicators in the U.S. have been noticeably bad. From April until June, GDP growth slowed to 1.7 percent and the unemployment rate was stuck above 8 percent. After the Lehman Brothers collapse, the economy began to improve for a time as a result of public finances and monetary policies. However, employment did not improve and the economic recovery couldn’t stay on track.

The difference between four years ago and today is that the U.S. government incurred large budget deficits then, and it is hard to implement fiscal policies now because of it. It is hard to see how much effect monetary policies will have on unemployment. The economy is heading toward a future which will be difficult to navigate.

But more worrisome than the U.S. is the European debt crisis, from which there seems to be no escaping.

The European Central Bank (ECB) finally decided that it would buy unlimited amounts of debt from countries like Spain, who have fallen into a credit crunch. In order to stop this crisis, Europe needs to act quickly. Even though they made some progress, they are falling behind.

We need them to quickly get the European Stability Mechanism (ESM) program completely up and running which will work with the ECB in buying the national debt of countries that are in such credit crunches. Spain needs countries like France and Germany to come to a consensus on helping out quickly.

However, support for the ECB and the ESM is not moving forward due to policies which postpone them. Greece, which is at the epicenter of the European crisis, along with countries like Spain will have to engage in drastic fiscal reform to restructure their economy.

The economies of China, Brazil and other emerging countries, which pulled along the global economy after the Lehman Brothers collapse, have quickly slowed down; that is cause for concern. The high-valued yen is dealing a bad blow to exports and the Japanese economy is at a standstill. We must be even more cautious about the high value of the yen.

We are halfway through this economic recovery. All countries — developed and developing countries — must work harder to increase coordination and cooperation.