A year After the Shock, Challenges Remain

The problem is easy to grasp. The solution is anything but

Just six months ago it seemed quite possible that we were going to find that out the hard way. We still might. But by common agreement, the risk of a global slump on a par with the 1930s has fallen substantially since the start of the year.

The extraordinary policy steps taken by governments and central banks since the Great Panic of September 2008 - the bank bail-outs, the record interest rate cuts, the trillions of dollars in budget stimulus - all of that seems to have worked. At least for now.

But today governments have to work out when - and how - to clean up the mess that those emergency measures have left behind. That could be even more challenging than the crisis itself. Trust me the crisis is not over yet, as it is being reported out by various sections because if it was, you can definitely see the unemployment fall, income increase, value of properties increase and so on.

But a realty check nothing is yet over. Maybe yes, we can say we are not in the depression stages, but I would like to say that we are not in it now, because for the  simple reason that, in depression policy doesn’t work.

GROWTH RETURNS

Its a news that has been capitulating most of the people around the world stating growth has been returning. Yes i agree to that, but growth has not returned back in the US or UK, the countries at the centre of the financial maelstrom, but France, Germany and Japan all supposedly grew in the second quarter of 2009.

Also supposedly China also has grown or bounced back to rapid levels of growth, far quicker than anyone expected at the start of the year among the developing economies.

But whatever it is or wherever we are, the poorest countries will still suffer. But, now we are all in Lehman's anniversary mode, considering the events of the past year, things could surely be looking much worse. The US economy may well have started to grow in the last few months and even the UK will surely not be too far behind is all what i can say supposedly based on the figures out there.

Challenges??

Yes challenges remain which keeps the midnight lamp burning for the ministers, economists, reformists etc.. So then, you might say not much is there, right? Well then you are wrong if your thinking that. Because there is a lot. How and when to start unwinding all of that policy stimulus is the one we hear about most often, but there are two other big ones.

The most important one is the current situation or state of the banks.

Even though some big international banks are returning to profit earlier than expected, IMF figures on total unrealized losses on bank balance sheets as a result of the crisis suggest that there is room for plenty more bad news.

There are particular fears about Continental Europe (notably France and Germany). Officials fear that French and German banks have been allowed to remain in denial about a large chunk of their bad assets. Ministers there live in dread of new requests for expensive help.

Even where governments have engaged in extensive stress-testing to ensure that banks have enough capital to survive (as in the US and the UK), the big worry is that they still have too much debt - and too little capital - to want to lend. And we all know, what it means when there is too much of debt and less capital. Very bad combination. An ideal self destruction tool in itself.

Savings?

Very important parameters used by economist in order to find the growth of the economy. A big worry is that not enough is being done to lay the foundations for more balanced global growth. Personal saving in the US is now about 5% of gross domestic product (GDP) - up from roughly zero last year.

To get its house in order, the US needs saving to remain at least that high, so the US can stop building up mountains of foreign debt.That is only consistent with rapid global growth if other countries step up to the plate, and promote domestic demand in their own countries as an alternative to exporting to the US.

Savings is an integral part for the development of the economy. Earlier it used to be an exclusive feature of the developed economies where they had good saving and income. But now all have come to par with rest of the world.

Most countries really need to focus on generating domestically generated demand, but I guess that is still a difficult task and it is difficult to predict how and when the commitment will bear the fruit.

If there is no rebalancing of growth in favour of domestic demand in "saver" economies such as China and Germany, there will almost certainly not be enough growth. It is as simple as that.

Unemployment will remain high across the developed economies, and public debt ratios will continue to rise, even several years into economic recovery

having said all, one thing is sure in my point of view. You cant expect the domestic demand to grow when unemployment rates keeps on growing,  as a result neither savings will increase, neither there will be any disposable income in the hands of people. So my question is how come all are reporting everything is improving, worst is over? we are at end of recession and all? I think it might be for the company’s who got the bailout money, because so far that has not yet been transformed to the common man.

I am person who don't take statistics into account because a fundamental reason is that it can be manipulated. When you jolt down all the dots saying GDP is growing, I don't get it? Because 1/5th of your GDP is always linked with consumption. So when your unemployment rate increases, people don’t have much money to spend and simultaneously they are not earning. SO then people will reduce spending and spend on essential commodities. When GDP is closely linked with consumption and that pattern is downwards how can one say its over? And moreover if you look the unemployment rate, it’s classically the same as one described in text books for DEPRESSION.  I still feel we are no where better than last year, but a little improvement is there with the false air of information passing around the world. But if you really want to really know if anything has improved, then I suggest go and ask the common man on the street and you will get your answer.

As i said in the beginning , The problem is easy to grasp. The solution is anything but