The rate of consumption is far high from the present means. Increasing rate of debts and fast rate of credit creation is the key factor of crises faced by sovereign states in US and Europe. These factors crest a large fear of huge recession usually named as “double dip recession”
The national debt of US was $2 trillion approximately in 1980 which rose to $15 trillion in 2011. The biggest economy of the world is US economy, but for the very first time the debt rate to GDP ratio has increased up to the extent of riskiness as its credit to GDP ratio has increased over 100% of GDP (gross domestic product)
The Americans who wants full time jobs, but are unable to get it because of current recession is about 25 million. The rate of unemployment in United States has increased to 7 million in last four years.
The technological and manufacturing edges have merged overseas due to the up-rise of BRIC. It is the main cause of decrease and de industrialization in national wealth of US economy.
The fiscal stimulus is targeted again as an undisciplined sector of creating finance, because it does not extend the creation of credit to private sector as it is required. Since 2008, by keeping the interest rate to zero level, it is said that the monetary policy is ineffective in the last few years
There are some causes of the crises that are being faced by the economy of USA that are generated due to the ignorance of Islamic principles. They are briefly discussed below to make the solution of the problem clearer.
1. Taking more and more credit and spending it on extraordinary things which are just a luxury for people, cause a huge increase in the financial deficit of USA to a level of $1.3 trillion (2011 estimates).
2. The rate of consumption is far higher then of resources in hand. This habit of spending more than income creates a vicious circle for the one who is saver and taxpayer. The debt of consumer has increased by 1700 over last 40 years. The fluctuations of business cycle are unsustainable.
3. Corporate finance makes up 40% of the total income. This helps the productive sector in a positive way. However, even such a high rate of earnings in the corporate finance sector could not make the essential business links between the investors and savers. Savers were the primary victims of the matter.
4. A thoughtful measure of economical welfare was quantitative easing. This measure focused on diminishing savings which caused varying property prices. However, it involved profit generation through more probable market anticipation, contrary to orthodox productivity which provides higher job rates
5. Financial intermediation is gaining roots rapidly whereas productive sector is being suppressed. Joseph Stieglitz identified that economic crisis in 2007-09 was a money game for a few economic giants who used the policy of social losses and personal gains. He added that the trustworthy financial organizations played negative role and proved to be a participant in the evil policies.
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