With the global economy facing the very real possibility of
recession and inflation – especially food inflation skyrocketing, the worlds
most important and most traded resource reached unprecedented levels. In
January 2008 the price of Oil passed the $100 mark when a single trader in
search of market fame pushed through a small trade. By May 2008 the price of
oil reached an unprecedented $135 a barrel. Oil has risen by 25% since January
2008 and by nearly 400% since the beginning of the 21st century. With Oil
playing a key role in the functioning of Western economies they face an
unprecedented crisis with key sectors on the verge of disaster. The sudden rise
in global commodity prices occurred in almost the same period as the global
credit crunch crisis. Western bankers, economists and politicians have all
failed to publicly link the crisis’s and have dogmatically blamed China and
India for consuming too much, greedy speculators, regulation and transparency.
The Global credit crunch, food crisis and oil crisis has once
again highlighted the fragility of Capitalism, as the fallout from the credit
crunch and the wider economic crisis continues, demands for alternatives are
certain to grow. The aim of this book is to scutanise the causes of the current
crisis and evaluate some concepts which go to the heart of Capitalism which
will always cause such crisis. It will asses the various factors that have all
contributed to the crisis and scrutanise why Capitalism regularly has economic
crisis. The Islamic view on such factors will be presented in the form of an
Islamic economy under the Khilafah in order to show how Islam will bring the
much needed stability the world needs. Adnan Khan 5th June 2008 Global Credit
Crunch The ‘credit crunch’ crisis that reverberated round the world was Global
Gross domestic essentially an American created problem. Since gaining product
(GDP) 2007 independence from Britain in 1776 the United States of America after
230 years has grown into a fully integrated, industrialised economy that
manufacturer’s 28% of the world's output. Barring a ‘great depression’ type
catastrophe the US economy should be worth a mammoth $14 trillion by the end of
the US tax year on October 2008.
The 300 million people of the US generate more wealth then the
next five nations combined and the US has been the world’s largest economy
every year since 1872. Post Industrial Economy Prior to WW2 the US economy was
largely industrial based with most of the labour force employed in the
manufacturing sector. Since the war the US economy has been transformed into a
service based economy, 80% of US wealth is generated in the service sector.
Wholesale trade, the manufacturing of consumer goods and retail comprise 65% of
the services sector, i.e. the consumption of goods is what drives the US
economy. The US over the last 30 years has become reliant on consumption and
today is the world’s largest consumer of many items. The US is the main engine
for economic activity in the world and its huge level of consumption is
responsible for most of the growth being experienced by China and India. With
only 5% of the world’s population the US consumes 25% of the world’s oil and
imports 9% of all goods manufactured outside the country, (the most in the
world, 32% of this is consumer goods).
The manufacturing of goods and the labour behind them are being
continually outsourced to cheaper locations, China has benefited from this
immensely as it is now a factory for the US as 70% of its manufactured goods
end up in the US. The US currently manufactures strategic items such as heavy
machinery and items it considers of national interest and refuses to transfer
such technology such as arms, aircrafts, motor vehicle parts, computers and
telecommunications. The US consumer is now buying more from overseas than ever
before, so much so that the US now has a huge trade imbalance with the rest of
the world. Its trade deficit or the amount it imports more than it exports,
with the rest of the world stood at a record $763.6 billion by the end of 2007.
The American consumer is at the centre of the US economy, their consumption is
what drives the economy, their spending allows companies to continually expand
production and any fall in spending would result in the complete breakdown of
the US economy.
Download the Book The Global Credit Crunch and the Crisis of
Capitalism here