Analysis of The Credit Crunch Has Shattered America's 'Neoliberal Dream Article by Heather Stewart - Essay Example

In recent years, free-market capitalism has put American economical stability into crisis and has transferred the power to the economy of emerging nations such as India, China, and Latin America. This transfer of economical power will soon put an end to the long-sustained dominance of American ideology, culture, and fashion over other nations. This will essentially be the end of “the neoliberal dream”. It is being realized that in the early 2000s, policymakers in America unnecessarily became too satisfied with the trends of economical power and stability whereas the actual situation required them to think otherwise.

Some economists are of the view that banks should look forward to an inflation target of 4 % instead of the targeted 2 % so that they can manipulate things as required. Blanchard suggests that raising the inflation now would ease the monetary policy during the financial crisis, and the fiscal positions would thus be saved considerably. Blanchard has encouraged policymakers to make use of such tools as leverage, inflation, interest rates, and asset prices to gain control over the deteriorating economic health of the US.

IMF has conventionally fostered, financial deregulation and anti-inflation policies. All countries have been trying to adopt the free market norm. This gave rise to “conditionality” which meant getting deprived of IMF funds upon breaking the rules. Developing countries have for a long, maintained strict anti-inflation strategies and Blanchard’s consent sounds just too abstruse to follow. Last week, the Chairman of the Financial Services Authority, Lord Turner made a speech in Mumbai disregarding the innovations suggested by economists in recent years.

He evaluated the usability of the “financialization” of the world economy. He said that the financialization of the world economy did offer such benefits as efficient allocation of capital globally, and identification of assets’ true value. He said that in 2006, IMF appreciated the now-notorious derivates of credit but in 2007, the credit default swap market rendered the major bank’s defaulting risk as the lowest. Time has shown that financial liberalization caused the risks in the markets to increase instead of making them safer.

Having heard the speech of Turner, most Indians did not completely approve of the concept of neoliberal orthodoxy. The current economic recession spread all over the world has completely shattered the ideology that formerly advertised American economic ideas all over the world, even within Washington and London.