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Fault Lines: How Hidden Fractures Still Threaten the World Economy
- 1. Submitted by – Harshit Gulati Roshan Roy Neha Gupta Divek Bhatia Kashish Handa
- 2. Fault Lines: How Hidden Fractures Still Threaten the World Economy is a 2010 book by Indian economist Raghuram Rajan on the underlying causes of the 2008 financial crisis and the structural weaknesses present in the world economy. It won the Financial Times and Goldman Sachs business book of the year award in 2010.
- 3. Raghuram Rajan was one of the few economists who warned of the global financial crisis before it hit Crisis did not just happen because of greedy bankers, short‐sided politicians The problems lie much deeper in the internati- onal financial system, and remain today Rajan outlines the hard choices that the world needs to make to ensure greater stability and restore lasting prosperity
- 4. There are three Fault Lines mentioned by Raghuram Rajan in his book. 1. Domestic Political Stresses (the need to deal with growing inequality) 2. Trade imbalances (America has been the economic engine by over consuming the rest of the world's output, the developing world needs to consume some of its own output). 3. Different types of financial systems (arms-length vs. relationship)
- 5. Tendency of the US to overspend that is growing inequality Technology has moved ahead ,needs people with better skills putting pressure on the people to acquire skills being a knowledge economy and the less skilled people are migrating elsewhere . In this kind of environment US is not producing enough skilled people partly because of education system or schooling is not that good Income inequality going up but the consumption inequality has not gone up much . this is where housing credit come into picture .people buy more houses , houses prices goes up and people take more loan against the houses n credit limit is increasing .
- 6. Rest of the world spending less and now world rely on US to provide that demand , creating your own demand is dangerous . whereas Asian countries don’t spend on consumption they spend on investment. They overspend and they had a burst .
- 7. Foreign money comes into the emerging markets Boosts the economy. Again people tend to borrow more that finally led to enormous credit problems.
- 8. How Geo politics has influence over the working of the nations Global GDP is forecasted at $119.1 trillion but still there is disparity in socio economic development, rich are getting more richer and state of the poor is declining Future cases of subprime crisis
- 9. Do not take irrational risks. Focus On Long Term Measure Aim to create a safety net for jobless recovery Enhance Global Cooperation
- 10. The Ongoing Foreclosure Mess Chronically Higher Unemployment A Smaller Chance of Getting Loans or Credit A Tougher Time Making Ends Meet
- 11. Transparency in Government Push for e-governance Institutions like RBI, CBI should be allow to work in an autocratic manner, without the influence of politics Reforms in ease of doing business Strengthening the research and development in business
- 12. Stable central government Various reforms in ease of doing business Relaxation of FDI norms India dependency ratio – The ratio of dependents such as children and elderly to the working age population is falling Gradual movement of workers from low productivity sector to high productivity sector
- 13. Finally it supplies innovative answers to practical questions The government used a quick and easy solution: a push for credit. A low-interest rate policy and a government bailout guarantee gave it strength Bankers not only to be blamed for the whole crisis