Some say the worst is over, some say the worst is yet, to, come, some say we are nowhere and there are some who say the world is going to end 2012. Ok I am not promoting the movie 2012; I am talking of the current scenario of the economy.
Ok I come back to the same question where are we heading? There is a lot of air filled with optimism saying everything is fine. But how can one say everything is fine when nothing is fine? Ok its confusing right.
Over the past two years or so, I have been closely following the world economy, more so, I have been following the bank policies and actions and as a result GDP and its performance. They say history once not learned, is often repeated. But then, no one likes to learn history. We are humans and bound to make mistakes, but does anyone know what is the mistake that is often repeated ?
Murder, Rape, Doping? None of them. But to forget to use basic sense over greed for money something that has kept on continuing centuries after centuries. In Vatican, on the coins it’s written “money is the root cause of all evil” which is very true.
I being an infant to the world in terms of knowledge of economy and GDP and banking products and practices, I remember this very question which struck me in 2006, when I read an article on subprime, which said the way ahead was Subprime loans. But I asked many this question, if a person can’t pay at lower rates of interest or doesn’t qualify how can they pay this? All gave me answers and kept notion that this kid is dumb and simply arguing. But last year, I guess all understood what I was talking about. In one way, the effect was not as huge as I earlier thought it would be, and that is good in a way, but it did reach to where I thought. So what is that people can’t understand that too much of anything good is bad? Human want is unlimited, which is why they want more and more money.
The big mistake lies in the education system, financial regulators and world leaders who run under the corporate magnets, which recently has slightly changed. I blame the education system for allowing unwanted alphabet soup products of finance creep into the system like CDO’s, Asset Backed Securities (ABS) etc... who wants all these? Ask a common man, and he will say he is not interested. But the person, who knows that this is the way to trick the system and get money, will say it has to continue. But I will debate on this some other time.
But Let me start on the great financial regulators. They think they know everything, in reality nothing. In simple words, they don’t even know what 1+1 is, and the best thing, is that they know what is to be portrayed. Good Public Relations Officers they are.
The role of any good regulator is to ensure they can implement the fiscal and monetary policies they have framed. But where does that happen, it always contradicts or falls in confusion, where it selects the wrong practices over the right one.
Amy good governance would have been able to curb this crisis from their respective end by not having allowed speculative trades take place, put a stop to the subprime loans given, selling of the subprime loans as packages between countries and so on. Yes, USA is the financial capital, doesn’t mean that they are always right. They can also make mistakes. We have to understand the grave situation which we are in now.
I talk of all this for the fact that, the large rate of unemployment luring around, and yet false reporting. As in my previous article, I stated, Stats truly do not reflect the exact situation, what exactly reflects is the feeling you get from the street. Someone once said, you got to be in the field to know what it is like. People on the ground know more than who is sitting in the office. Last week, UK reported the economy has not improved and this week, USA has reported consumer spending is still down, so what does this point? We are no far better from where we are. One thing we all learned from the crisis is that we all are linked and interdependent with all the countries. So if two of major economies in the world are still in deep waters, how come others have swam their way out of trouble? Here comes the answer.
Wait for it.
Wait for it.
They are lying. In a little sense, yes they must have improved from where they were last year, but that is a tiny percentage. Because when two of major economies are struggling, how can others perform? If it so, why people are still unemployed? Why consumer spending is still low?
The bailouts purpose was to allow flow of money in the economy, but in reality it was flow of money from govt. to corporations to pay huge bonuses to their directors as the recent Goldman Sachs story is the best example. Goldman says it’s not our business, to interfere in their matter, but I would like to have a reality check, Boss, your bonus is our money. You’re using tax payer’s money to fill your pockets!! Look at the arrogance of such an institution. Lehman Brothers, once the fourth-largest US investment bank, filed for Chapter 11 bankruptcy protections in the early hours of 15 September 2008. Governments around the world subsequently had to pump trillions into their financial systems through bank bail-outs, central bank actions and huge stimulus plans to save their economies from collapse.
Let’s be true to ourselves, as we know or what it should be that, the world economy is still in bad shape. The figures that are reported are false, it’s just being reported to show that their respective economies is improving in order to create false air of optimism and bring more investment to their economies. This is bad, as I said earlier, History once forgotten; it’s often easy to be repeated. We are making matters more grave, worse, and bringing forth a further troublesome crisis on our hand which can be more damaging, that ,social order can be toppled and there would be clash of people with money and with the people who don’t. It’s an ugly scene to think, but all actions are leading towards there.
The stimulus is producing growth but saying that it’s not “genuine” growth because … it was caused by the stimulus. The basic economic logic says that the stimulus should aim to close the output gap. And it’s obviously not remotely large enough to be doing that right now
But there is now concern that as the banks starts to recover; they have not taken the necessary steps to prevent a repeat of the crisis. Alarm bells should be ringing with the early signs of a 'back to business' attitude in the City and little evidence that policymakers are taking measures to ensure the next economic recovery is better balanced than the last one
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 realities 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.
But whatever it is or wherever we are, the poorest countries will still suffer. 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.
Unemployment will remain high across the developed economies, and public debt ratios will continue to rise, even several years into economic recovery
So many actions and very little outcome, why is it so? No fundamental change where it is required has not been taken. As they say vanilla doesn’t cut it anymore, it’s all about what chocolate sauce, whipped cream and cherry you can put on top. So if the world wants to avoid another economic disaster, it has a doubly hard task now.
I have something for the leaders which is can be explained by these lines from theory of deadman -not meant to be song
“There's still time to turn this around
Should we be building this up
Instead of tearing it down
But I keep thinking
Maybe it's too late.
It's like one step forward
And two steps back”
I come back to the same question I started with where are we heading? To a double dip or W- shaped recession / recovery? economy may be improving, but with so many people still searching for work, a return to prosperity looks like a distant dream for many.
Bottom line is that we’re not going back to the good old days without fixing our banks and fundamentals.