The Great Depression was a significant event in history. Many believed that it was caused by a failure on the capitalist system for which the solution would have involved the government intervening with the economy. Before the creation of the Federal Reserve System, government had little control of the financial markets. They did nothing when the Great Depression spiraled the economy into financial turmoil. As the global financial crisis takes its toll, it cannot be helped that this can be compared to the Great Depression. The financial markets should have been protected with careful and measured investments. The government must work hand in hand with private sectors to be able to ease the burden of the crisis. Investments in emerging countries and markets are likely to bring higher returns that will benefit the United States.
Brazil, Russia, India and China make up BRIC. The term is coined by a Goldman Sachs economist, Jim O'Neill. He wrote a research paper entitled, “Building Better Global Economic Brics” (Vincent, 2008). The research paper contained his arguments of the four emerging economies have the possibility of making up about ten percent of the world's GDP at the end of ten years. The growth story of the economies of BRIC have spread around the world.
The International Monetary Fund has calculated that BRICS and other emerging markets they support will make up 30 percent of the world economy. They also account for 47 percent of the growth in the global economy. China accounts for the biggest share with Brazil, Russia and India following suit. Cost-efficient manufacturing practices and commodities are not the only reasons for the increasing growth. Growing Asian economies like India have a bigger account for 26 percent of the market for information technology services. This percentage is still growing at a rapid rate than the information technology services in developed countries. The growth in these markets are currently being driven by both the domestic and global demand. Economies of BRIC has worked to increase the market share of global exports that come from emerging markets. The percentage has doubled from 20 percent in 1970 to a total of 46 percent in 2006. The flow of capital into the emerging markets and BRICS have increased so much at record amounts. The Institute of International Finance has reported an increase of foreign direct investment. The flows of investment of have driven their equity markets. The stock market of Brazil increased by 369 percent from November 2001 to 2007.
Russia on the other hand, rose by 630 percent, India by 499 percent while China's stock market rose by 201 percent. These figures are based on the Hang Seng China Enterprises Index (Vincent, 2008).
The equity markets have been increasingly robust and there was no surprise that the BRIC economies make up 39 percent of initial offering of public stocks in 2007. The year before that, the figure was 32 percent (Vincent, 2008). This was significant for the part of private investors. They want to be exposed to these markets by acquiring equity funds that were actively managed. It would seem that Brazil, Russia, India and China were not showing signs that economies will slow down in 2008 (Vincent, 2008). The BRIC countries will become the crucial key for the growth of the global economy. Brazil has achieved strong economic and export growth. Russia is compensating for the weak flow of capital with high prices of oil. The economy of India has further grown because of an increase in domestic consumption. China is able to maintain the growth rates of its gross domestic product over the 10 percent mark because of freight rates and prices of domestic prices. Financial analysts believe that Brazil will perform better than China (Vincent, 2008). This will help support the prices of assets and Brazil's equity market. The market for Brazil will be less sensitive to whatever event that might happen to the global economy. Capital protection is ensured when trends in currency and commodity will be infused in structured products. This move affects the currencies of the BRIC that are gaining strength against the dollar. The prices of agricultural products also remain strong because of the trend of western food (Vincent 2008). The Brazilian stock exchange and financial system is a viable investment option in the future because it is the largest among the emerging countries, the others being Russia, India and China. The banking system accounts for 84% of total assets of the total composition of Brazil's financial system (Anwar, 2007). The remainder of the assets are held by credit unions, development banks and non-banking institutions.
Another preventive measure to protect the financial markets is the strengthening of the Federal Reserve System. The Federal Reserve System was designed because it was a product of a compromise reached between the clashing principles of government regulation and privatization.
In the planning process of the design, some parties wanted it to have private characteristics while others wanted the involvement of the government. In the current banking system, the private banks operate as businesses for profit but the government has imposed restrictions to limit their operations. The Federal Reserve System is meant to oversee and ensure that the government regulations are followed by banks. The structure of the system is said to be the balance between the involvement of the government and privatization (Broz, 1997). The private banks are allowed to express their ideas and give information to government authorities about their economic status. The government will then use this information in making policy decisions for the Federal Reserve. The end result is that private banks are able to proceed with their profitable operations while the government will monitor and regulate the private banks including their activities (Broz, 1997).
The government should not just stand by and let everything else crash just like in the Great Depression. The government can do something about the problem through policy making efforts and encouraging private corporations and individuals to invest in financial markets that they see as profitable.