The Crash of 2008
It appears that the Breton Woods is over and the world is gearing to take the shock of the biggest financial crunch since the oil crash of 80s.
The Oil Crises of 1973 triggered a snowball of petro dollars with oil producing countries suddenly became very rich. . However by 1989 through military imperialism, it had been successfully converted into the debt of third world countries through institutional and state controlled multi lateral borrowing and lending.
The speculator generated Asian Crash of 1997 was short and swift. It proved how individuals blown by the winds of free market economy and liberalism could affect the sovereignty of nation states.
However, while controlling the biggest finance and brokerage houses, USA did not feel it necessary to apply any checks on non state actors. The power of SECs was marginalized in face of high speed computer simulations by Financial and Market Watchdogs. The advent of computers and computational projections promoted the finance houses to take more risks, introducing Risk and Crisis Management. These analyses also helped to control growth of new economic power houses (South America) and create/blow bubble economies.
Today the crises place the Asian Finance Houses that had hedged investments in the US System through lending likely to suffer most. Therefore in their own interests, Asian Stake holders will be compelled to move and rescue US Financial markets. This new cycle may lead to some constraints on liberalism as also test the existing alliances of major economic blocs. The countries that have benefited the most from the recent oil price escalation are the ones most likely to move and rescue the US markets. In the final analysis, despite a small hiccup, USA will still control the international financial system.
Seeing inevitable crises such as this, parts of Russian and Malaysian markets had broken away from the GOLD Dollar Equation way back in 2001. These two markets may survive this crisis and make maximum gains. So may India, if it has hedged its economy through similar moves.
Pakistan will survive this financial meltdown despite a High Intensity Conflict that rips it. The focus of investors will shift for a short time from Stocks and Banks to Real Estate, speculative buying/selling. A major part of domestic savings may already have shifted to Gold in the past few months. Within the next 12 months, agriculture production despite Indian arm twisting of rivers will give a respite to the strained GDP. GNP will grow due to devaluation of Rupee. The government has to curb luxury imports, consumer items that can be substituted domestically and look for some deferred payments on major imports. GDP as predicted is not likely to sink as low as 3.7. At worst, it may remain just below 5 and above 4. The main reason is that the Pakistani GDP grows at a constant factor of 1.1 each year. This will not allow the GDP falling below 4.
The foreign exchange reserves with private banks are the issue because Dubai has become a very big currency market, from where this liquidity may be used to hedge US investments. The question is to determine the direction these dollars will take to flow. They may find their way in Euros, Gold and properties both domestic and overseas. Some may find its way into some very reliable banks.
The crises will also result in behaviour of a more responsible stock market in Pakistan.
Ijaz Gul
