Sunday, April 19

THE GLOBAL ECONOMIC RECESSION--when is it going to over

SCENE-1:
April 18 2008


I was reading frequently about the US sub prime crisis in the leading newspapers. I asked my Economics teacher if he could explain me what that fuss was all about. He said, "People are defaulting on the home loans they took from the banks and this is pushing a lot of banks into very uneasy situation where they may also go bankrupt although the chances are very unlikely. By the way don't think too much about this as it's not a big deal for our country. There are a lot more important economic problems in our country to discuss".

SCENE-2:
October 18 2008



A friend to me: Yaar, when is this recession going to end. Look what has happened! Companies are not coming for campus selection any more. Besides, existing employees are losing their jobs, while some people are saying that it may continue for the next 2 or 3 years. Do you have any idea how serious is this?
I Said, " Look, Whatever information I have at present It seems that the situation is quite horrible and may get worse in the coming months if appropriate measures are not put in place. Besides about when this will end, how can I say when the leading economists of the world are in confusion about its duration ".

SCENE 3:
April 18 2009



Lying in my bed I was recollecting my past memoirs. Suddenly something struck my mind. On September 15 I was walking through the corridors of 3rd year hostel. A friend came from behind and asked, "Did you hear the news?". "What happened?", I replied. He said, "Lehman Brothers has filed for bankruptcy and Bank Of America is going to buy Meryll Lynch". I knew that Lehman Brothers was an investment banking company dealing with some kinds of financial products and the dream company of the post graduate students of the prestigious IIMs of our country. So, It was a little interesting for me to know exactly what happened. I went to my room and checked the latest news on Google. The first news was about the bankruptcy of Lehman Brothers. The news had some other interesting informations but I didn't read further. At that time I was completely unaware of the implications of this event. The very next day the newspapers were full of articles about how this was going to affect the global economy. They also contained some uncommon economic terms and the most used among them was 'Recession'. I thought recession! But, How could the fall of a single company bring it. For me it was as if the situation was being presented in a graver manner than what it was. But, sooner I realised that the situation was really worrisome. I searched about recession on Internet although I had a little information about this owing to my association with Economics some time back. I found some useful facts. One of them was the Keynsian theory put forward by John Meynard Keynes in which he had described the necessary measures to check recession. According to him in the time of recession monetary measures do not work. The government requires to put fiscal measures in place to tackle it. Further I found some relatively new economic theories stating that the Great depression of 1930s was actually the result of mistakes committed on part of the governments and the economists and that the recession could not come now. Also some economists had suggested that if the recession came the developing countries would be the least affected because of their relative insulation from the world economy and any upcoming financial crisis could be handled with carefully adjusted monetary policy. Some highly enthusiastic economists had even discarded the Keynsian theory saying it was not more than a bundle of craps.

But as we all know now, recession has come and in full force. It has affected both the developed and the developing economies. The monetary measures are not working and the governments of different countries are opting for the large fiscal incentives and the bailout plans. I sometimes wonder how within a month's time the money went out of the market and the entire financial system crumbled. But a thorough examination of back events clearly shows that the seeds of present crisis was sown a few years back and it unfolded only when it became impossible for the corrupt and the greedy financial institutions to handle it. Those who created it, it took their lives first and then spread elsewhere. So, it was more than a month's affair. But, now as the different bailout plans and monetary measures have been announced, money has reached to the market and the credit squeeze is no more as dangerous as it was a few months back. Still ther is not much economic activities going around in place and that is only because of the fear of loss which is preventing the extra cautious banks to lend making it difficult for the cash strapped industry to survive. The recession infact now symbolises the the loss of trust among the bankers and the businessmen with both of them equally responsible for the present mess.

In the recent days, some glimpses of hope are being seen on the financial front with some people looking pro optimistic however as the noble laureate Paul Krugman puts, "History shows that one of the great policy dangers in the face of severe economic slump is premature optimism ", I think we should not be seeing too much positive at present and instead work more aggressively to take the economy out of the slump.

In case of India it has been hit more severely than expected. Still our economy will grow but at a slower pace. Recently, some good news have come forward. Prices of oil have gone down substantially and Sensex crossed the psychological mark of 11000 a few days back. Rural demand is still strong and a normal monsoon season is furthur going to work in our favour. Thus, things are looking positive on the Indian front too. But all things are not showing the signs of recovery. Industrial production growth is still negative . Job cuts are frequent and business groups are reporting losses everyday. Both the good and the bad elements are present in the economy and it is very difficult to decide which one is more strong. However there is little doubt about the fact that India and China would be the fastest recovering nations in the coming days and will be among the best placed to take advantages of the improved situation . So, may be in a few months from now, we would be able to see the clear signs of recovery and the stabilization of financial system torn apart by the recession. Till then the concerned authorities will have to put efforts tirelessly without losing hope. It will be a matter of time as to when their efforts pay the necessary dividends.

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