Nepal’s economic fragility is mostly dependent on external forces than internal ones, barring the protracted internal politics of the past which greatly affect the domestic economy.

But, more than that, the entire world remains

shaky with the outbreak of financial tsunami that emanated from the United States. The epi-centric portfolio of the US economy and the possibility of domino effects are felt by many countries in multiple sectors of their economies.

In order to understand the causes behind how the financial tremors started in America, it is necessary to review the genesis of financial means that we have adopted from the early stage of gold standard to the present hybrid of credit and internet intervention to conduct financial transactions. As we all know,

the westerners run their entire lives through credit means. People get credit card leverages through their employment history more than their own cash balances. And, the limits of their credit cards keep on increasing through their maintenance of credit history. For instance, common people with the average salary of less than $5000 per month can have their credit drawing limits up to thousands of dollars.

Based on this strength, people keep investing in multitude of potential areas like stocks, mortgages, bonds or infrastructure.

The mortgage syndrome

of the US is an example

of the investment made

by zero bank balance investors but holding strong credit card history.

Hence, it is good if the investors generate profits through their enterprise, but if they fail to do so, it is the banks that are on the receiving end. The financial bubble burst in the US is explained by the same

factor. While many economists accuse the present recession of being a massive intervention of the internet in banking realm, others blame it on the chronic syndrome of capitalism.

In Nepal, the global financial crisis would have a direct impact on remittances earned from the US and other affected countries. The massive layoffs and unemployment with the closures, retrenchment, or non-investment in the productive sectors would generate cascading effects on their economy. And, a shrinking job market would curtail employment prospects in manufacturing, infrastructure and intellectual property areas. Primarily, labour markets of the Gulf sustained by massive US investment is likely to bear the brunt of unemployment threat. This would force layoffs in huge numbers. Reduction in remittances will shake our financial institutions, discouraging them to invest in consumer markets.

The peg system of stability might be in jeopardy with long term effects if recession lasts a decade as stated by financial analysts. Likewise, plummeting prices of petroleum products in the international marketplace would force the OPEC countries to curtail their production and shrink investment in other productive areas.

This would also have a cascading effect on the employment sector. However, reductions in the oil price would help contain the inflation in non-oil producing countries, which would certainly have an adverse impact on impoverished countries like ours. A remedy lies in the State in encouraging small enterprises (SMEs). Promoting franchise businesses is another means of combating this kind of economic crisis.