Question:
Where has the economic crisis, which began in America and swept through Europe and then the world, reached?
Answer:
To shed light on this subject, we mention the following:
1- The collapse of the real estate market in the United States has extended to all parts of the world, leading to the collapse of many banks, which resulted in unprecedented government intervention to stop the global economic collapse. However, the result was what is now called the Great Recession, the worst since the Great Depression of 1929. This global financial crisis highlighted the fact that the (economic) boom of the previous decade was actually a result of debt. And here is the failure of the world's largest economies to solve this five-year-old crisis continuing!
2- Joint attempts were made by the world's largest economies with the intention of coordinating action to reach a solution to the crisis. The basis of this coordination was the claim that the global economy is interconnected as a result of the effects of globalization, and that a collective global approach would be better for the world's interest. But this unified approach did not last long due to the spread of economic nationalism—where each country struggles alone for survival, because each country expects other countries to seek to fund the global reserve. This appeared in various G20 meetings and conferences in their attempts to fund the rescue of collapsed economies, where the result was that most funding projects did not go beyond the paper they were written on, due to the economic nationalist outlook of the major powers. The Economist published in 2010: "But the return of the specter of the darkest period of modern history requires a different and even serious response. For economic nationalism, which seeks to keep jobs and capital at home (inside each country), has led to the transformation of the economic crisis into a political crisis and a threat to the world with depression. If economic nationalism is not buried immediately, the consequences will be dire."
3- Heated arguments occurred between the Germans and the Americans over the best path for the future of the global economy. Angela Merkel, along with the vast majority of other countries, considered the unsustainable growth model used by the United States—a growth fueled by cheap borrowing (credit) and debt, according to the government's view of using money to stimulate growth—to be an outdated model. As for the European approach, it was represented in the need to control budget deficit levels in each country through austerity measures. Austerity measures are usually taken if there is a threat that the government cannot meet its debt repayment obligations. This matter is considered an end in itself, different from economic growth. With the threat to the credit ratings of most major economies in the world, many of them resorted to austerity, i.e., reducing the government deficit to satisfy the financial markets. The problem with the austerity approach is that such a policy does not actually aim to create growth, which would create jobs and income in society, and thus lead to general economic growth, but rather aims to reduce government debt.
4- The United States' approach of seeking to stimulate growth has not achieved better results. Stimulus requires increasing government spending using money borrowed primarily from abroad (such as China), as is the case with the United States, or money injected by central banks simply by entering numbers into a computer. All these measures are temporary measures that may move stagnant economies for a while, but not to support sustainable economic growth. What has been achieved in terms of growth is, in reality, inflated results caused by stimulus measures intended to have a temporary effect. Consequently, stimulus is merely a support for government jobs and the service industry that ends when the stimulus ends, leaving the state's economy often in the same state it was in when the stimulus began.
5- Western governments also resorted to quantitative easing, which is a new development used as an electronic means of printing money. This unconventional policy was used by central banks (i.e., the government) to stimulate the national economy when conventional policies failed. Accordingly, these central banks began to apply what is known as "Quantitative Easing" or "QE" by purchasing "Financial assets" such as credit bonds and stocks... to inject a pre-determined amount of money into the economy. This is achieved by the government purchasing financial assets from banks with new, electronically manufactured money—that is, by the government paying the prices of these financial assets to banks electronically, not in reality, which increases bank reserves. Despite all this, the global economy at the beginning of 2013 is no better than it was at the beginning of 2012; rather, economic recession has gnawed at the bones of some countries that were trying to save themselves from a comprehensive recession. Reports since the beginning of 2013 have been speaking strongly about the possibility of Britain entering a major economic recession like some other European countries burdened by debts that have come to be counted in trillion-dollar figures. Thus, quantitative easing ended in reality without an effective result. In fact, the global economy, five years after the economic crisis, is still suffering, especially due to the steady increase in unemployment; social chaos has already begun in Europe. All attempts to solve the crisis did not address the problem of debt-based growth. While debt was the cause of the problem, the attempts to solve the crisis resulted in nothing but more debt. Thus, Western governments tried to treat the patient with the disease itself.
6- Finally, there are three possibilities that may eventually lead to economic recovery, which we mention from lowest to highest:
The first is for the double-dip recession to turn into a depression and a significant drop in prices, which leads to a fall in the prices of loans, real estate, and goods, giving a push to start economic growth represented by the ease of paying off these loans. This possibility is weak because the capitalist economy is based primarily on loans and the Riba (usury/interest) resulting from them, and the drop in the prices of loans (Riba) does not last long as long as the capitalist economy exists.
The second possibility is for China to save the West. China's massive trade and surplus funds are linked to the debts of the United States, Britain, and large sectors of the Eurozone, which are large and unsustainable debts. It would be in China's interest to save the West. This also means the Western world would be forced to accept Chinese global leadership. But the issue here is not whether the West will accept such a rescue, but rather whether China will adopt such a policy.
The third possibility: that the sun of the Khilafah State rises and the Islamic Economic System is implemented. Not only the Khilafah State would benefit from it, but also the countries of the world dealing with it, which would make such global crises non-existent or in a controllable situation.