Today’s economic situation is not good for most businesses and leading economists predict that this year will be the worst year for companies to go bust. “The worst – perhaps in more than a century” says Oxford professor Nick Clegg, who is an economic philosopher. This prediction comes from the predictions of many prominent economists who have been warning us of a recession for some time now.
The global economy has suffered serious damage during the pandemic but because of governmental stimulus measures, it turned out to be less severe than it could have been. Most countries have suffered negative growth in their GDP but the UK’s recession was much deeper than other countries. The main reason behind the downfall of most companies in the past years is because they were unable to keep up with high consumer spending. High consumer spending is what propels most of the world’s economies especially the US and Europe. The recession has not only affected the UK’s economy negatively but also many other countries. For instance China has lost much of its investment in the IT sector, which is one of the main drivers of its economic growth.
Now let us move on to the reasons why financial institutions go bust. It all starts with the excessive use of credit in most countries, which results in over printing of money and printing too much currency. When a country prints more money than it needs the central bank finds it hard to control its inflation. The only way to control inflation is to make sure that there is enough money in the system to facilitate both demand and supply of the money in the economy. However with an excessive amount of currency in the economy, the demand for goods and services falls significantly. Ultimately this leads to a reduction in the production as well as the number of businesses and employment levels fall.
Most of the economic institutions suffered heavy losses because they were unable to keep up with the changing pace of the markets. Credit conditions got worse. In fact there was so much debt created by financial companies that it became impossible for them to pay back loans. Many companies were forced to declare bankruptcy, which is when the economy started going down hill. Many more companies and financial institutions went bankrupt, leaving the country with no hope of recovery.
Now this does not mean that all the financial institutions were negligent. The problem was that only few people had the right skills and experience to run these institutions. And those who did not have the required skills or expertise soon left the industry and most of the institutions became poor management. Many young graduates joined the industry with the wrong ideas and ended up with nowhere.
The problem is not with the financial institutions alone. Many companies had poor management and it is very difficult to find out where the root of the problem lies. Many companies have poor management because they lack the correct information and knowledge to manage a business effectively. Poor management results in poor products, poor quality services and it also results in the company’s going bust.