By Sreekumar Raghavan
Economics itself is a dull subject not to talk of everyday writings by experts. So the current talk on recession makes interesting reading because most often you can’t get beyond some figures quoted by experts. But the newspapers are full of them. Economy has been growing the lowest since 2001 or that a recession is imminent may or that more liquidity is being injected by central banks … Does it make sense to you?
I went through some of the writings and have compiled some data which might portray the so called recessionary trend better.
The US Economy lost 1,59,000 jobs in September, the most in a month since 2003, according to The Economist. (Compare this with the situation in India—a new textile project in Maharashtra will create an additional employment of 82,000 by year end, according to Assocham). Emerging economies are faring better.
Car sales are falling in USA. It is at a 16-month low. This is not because Americans don’t want to buy cars, but no one is giving them credit!
Financial Times reported that even sales of every day necessities has started falling in USA as branded goods have become costly. Even Coke and Pepsi was feeling the heat. Indra Nooyi, PepsiCo’s chief executive, said recently that consumers who might have previously left a screw top bottled drink unfinished. It is now easier to find out whether one is hurt by recession by just looking at how he consumes the Coke bottle.
People are queing up at cheaper multi-branded stores like Wal-Mart instead of going to single-brand expensive stores.
The Wall Street has had the biggest fall since 1987, but you must understand that stock market movements are largely not economical but based on psycology.
Not many may know that the Great Depression of 1930 and the present would be depression also has something to do with American habit of buying up houses on credit. By the by, the US Government also attaches great importance to their citizens owning houses.
The present wave of housing mortgage closures is nothing new to US economy, it happened in 1920s. “In the 1920’s a very substantial boom in the construction of apartment houses and office buildings was financed on credit, based on the hope of quick speculative profits. The excess building in that one period depressed the level of such construction for the next 15 years,”,according to Charles L Schulze in National Income Analysis a book that I studied at college.
The impact of housing to economic crisis is evident in UK now. The Guardian quoted an IMF report saying that housing slump could cause recession in Britain by 2009. It said that UK’s housing prices were 20-30 percent higher than what `fundamentals’like higher incomes or population pressures could justify.
In the 2007 crisis and the 1929 Great Depression investment companies and trusts had a large role to play. And hence the present argument that banks should move away from investment banking.
As Peter Drucker wrote in his book, The New Realities (1990), “Economic policy requires that lay people such as politicians understand the key concepts of economic theory. But economic reality is much too complex for that. It is already difficult,, if not impossible, to give answers understandable to a lay person to the simplest economic question.”
Right now in the absence of a simple economic theory what goes on as economic policy is global firefighting to solve a crisis. We will be bombarded with news and analysis on what went wrong and what governments are doing to save the global economy. And it may also sound strange that dollar, gold and oil is all that matters in global economics. Not investment or savings. If one falls the other goes up and when investors lose confidence the equities also crash- the ultimate barometer for economic sentiments.
Even countries gear up to face the global economic slowdown there are still opportunities for the innovative. The post 1929 created a flood of writing on what really happened during the period. However, the bestseller of the present times could be the survival tips for the Great 2008 Recession. Provided the writer manages to get an advance.
