Thursday, October 09, 2008

Tragedy of global economy, this is not the problem of market economy (capitalism)!

The fundamental cause of ongoing global financial crisis is not because of the nature of market (capitalism); this was induced by the fact that many countries actually abandoned the basic principle of market mechanism!

The US treasury decided to purchase the bad debts incurred by troublesome assets which will be unsaleable in 10 years time. It has been increasing tax on innocent citizens and spoiling those who are mostly responsible for the cause of financial crisis. The UK and other European countries excessively rely on nationalising institutions under fear of bankruptcy, which is the same mistake Japan did in 1990s.

Allowing troublesome financial institutes exist is rather dangerous than bankruptcy. The bankruptcy rehabilitation policy would not enable the financial market to be recapitalised and just perpetuate the economic down turn in the long run. Also, rise in income tax burden for this project disturbs equity of individuals. The reduction of income by further tax increase has a larger effect than the fiscal stimulus for purchasing these assets.