We have seen various dangers on human civilisation, some man made, some natural and the rest which are the combination of the prevous two. Unfortunately, in last few hundred years we have seen three persistently threatening calamities all over the world. Need to measure the scope of their devastating effects on the planet; scope of effect only as we can not measure the actual imact even with high degree of standard deviation.
Let's first look at the global financial instability, which is probably never seen as a major threat as compared to the other two. This is normally seen as a cyclical issue which is self correctable or most pessimistically speaking, it only needs some stringent policies, austerity drive, fiscal policies overall etc etc and it will go away in few months to years, without bringing a major cause of concerns that deserved global discussion and leadership to uproute it.
To understand it better we will divide the discussion in five parts. First will deal with the history of finance and economics and its reltions with current financial concerns, second with global warming and lastly on terrorism. The fourth part will deal with comparing the impact of the three threats and last one will suggest the possible solutions to deal with them.
First Part:
Financial and Economic issues: History suggest that the stock market crash back in 1982 had shaken the US stock market when the major banks have lost the assets as much as they had created in last few hundred of years. Even before that in 1929, the great depression had forced the world to see a worldwide long term financial doom. Again in 1987, the stock market crisis followed by the Y2k IT bubble crash had given us enough indication to start finding out some inherent and ridiculous assymetry and systematic deformity in the financial ecosystems, caused by inaccurate financial models which only helped to mislead hyperambitious citizens of the financial world.
But starting at the end of year 2007, the financial crisis had the potential to put all the pevious ones to shame, but not many foresee that and still not many have realized that. The countries all over the world showered their money on the crisis and deceptively enough, the crisis showed the sign of disappearance, just to come back in an even worse form. A good analogy of the situation will be like this. After a long busy day, you are having a few sip of vodka and enjoying that with a cigar. Shortly you feel sleepy and the cigar falls on the carpet and smoke starts spreading in the hall. What you would do? You have got two options: either extinguish the cigards fully or put a towel on that so that smoke does not spread for sometime. Likewise and unfortunately, the world government took an approach similar to second approach to fight the worst financial tsunami in the history and did not try to find out and eliminate the underlying cause of the disaster. That time economists world over had warned their government of the possibility of the W-shape growth, but it was not taken seriously. Had it been taken on a serious note, the world leaders after discussion with their financial advisors, would have gather together to figure out how to tame this monsterous crisis so that it does not reappears again. But it did not happen, and we landed on the mouth of the financial volcano, which will burn everything to ashes in next ten to fifteen years.
Why was this the worst financial disaster? Unlike before, the world had become addicted to use of the financial derivatives, which was once termed as the Financial Weapon of Mass Destruction by veteran financial genius, Warren Buffet. In 2007, the total notional value of transaction involved in SWAP market was $587 trillion, 4 times of US GDP as per International Derivative and SWAP Association. Imagine a default of 1 percent, which will be equal to GDP of UK.
This time, the world is not sitting on the reserve of cash which it can sprinkle on the fire of crisis, if needed. What makes it monsterous is that this time the crisis is not caused by just the derivative, or fiscal deficit of major countries or shrinking of global business, but by the combination of all of these plus a much bigger issue which was ticking like a time bomb for last twenty years. That issue can on its own destroy the backbone of globals financial system. Of course, we are discussing now the credibility of US dollar.
