It seems Americans are having a tough time grappling with their personal finance as well as the health of their national economy.There is bad news left,right and centre.Rising unemployment,soaring gasoline prices,sky rocketing commodity prices,crashing home prices,a sliding dollar,a bumpy stock market,escalating inflation have kept the American economists right on their toes.However the fears are backed by firm evidences.Dollar has weakned aginst Yen&Euro to record levels.There has been a huge liquidity problem in the American ecomy.FED has tried to inject liquidity by slashing interest rates six times from 5.25% to 2.25% since September.But that has sounded a death knell for the dollar and failed to stop the collapse of Carlyle Capital & Bear Sterns.Pundits believe that these developments may set the stage for bankruptcy of the two biggest mortgage entities in the US - Fannie Mae and Freddie Mac. FED also announced that it would lend up to $200 billion to investment banks in exchange for the banks' beaten-up mortgage-backed securities.Uncle Sam has already announced tax-cuts upto $150bn which would increase spending by the Americans households. They are already cutting down on expenditure as reflected in retail and home sales data.By the end of 2007, 36 percent of consumers' disposable income went to food, energy and medical care, a bigger chunk of income than at any time since records were first kept in 1960, according to Merrill Lynch.
Technically it takes two consecutive quarters of shrinking economic activity i.e. negative GDP growth to confirm a recession. Although no political authority has officially declared a recession many economists now believe that US is already into recession.Some are equating it withv the Great Depression while rest with 1970’s ‘stagflation’ crisis. The US economy has already fallen into a recession, according to 71 percent of 55 economists surveyed by The Wall Street Journal.
Billionaire investor Warren Buffett claims the United States has already fallen into recession and warned that shares prices still may have some way to fall.He believes that a sharp slowdown is already underway marked by rising oil prices which may ignite inflation in a “serious way”.He also backed out from the offer to reinsure $800bn of government-issued bonds underwritten by MBIA, Ambac and Financial Guaranty Insurance.Former Fed Chairman Alan Greenspan wrote in the Financial Times in March that the financial crisis — which he said would likely be the "most wrenching" in the United States since World War II — would end only when housing prices stabilize.
David Rosenberg, chief North American economist for Merrill Lynch, believes that the US has entered its first full-blown economic recession in 16 years.He feels that the parallels to the 1970s go much deeper than just the shock of record oil prices, which tripled during the 1973-1975 recession and have seen a similar rise in recent years. Then as now, food prices rose along with energy. Then as now, declining home prices gave homeowners ulcers over equity. And the dollar, which held up fine in the 2001 recession, is falling now even more than it did in the early '70s — 9 percent then on a trade-weighted basis, 14 percent in the last year, according to the Federal Reserve. "The mid-1970s is the best template," believes Rosenberg, "if there is any."
If the situation is similar to 1970’s then more is yet to come.That era saw Standard & Poor's 500 index fall 36 percent from its peak to its trough. Right now, the S&P 500 has only lost 15 percent from its record highs of October 2007. According to a new survey by Duke/CFO Magazine nearly 90 percent of chief financial officers of global public companies don't see an economic recovery coming until 2009.
The last time the U.S. economy tilted into recession was 2001. And it was an entirely different animal. Investors bore the brunt of that downturn as the stock market shook off the excesses of the late-'90s technology boom. Encouraged by their government — and fortified with tax rebates in their pockets — Americans kept spending. Perhaps most importantly, there was no reason for anyone to doubt the stability of the financial system. There was no credit crisis to speak of, and the housing boom had yet to begin.Dollar had not weakened to this extent. "I think the current financial crisis looks to me like the worst one since we got into the Depression," says Richard Sylla, who teaches the history of financial institutions at New York University's Stern School of Business. Almost half the economists surveyed by Wall Street Journal said a recession this year could be worse than the 2001 and 1990-91 downturns. The economists, on average, forecast meagre economic growth - just 0.1 per cent at an annual rate in the current quarter, and 0.4 per cent in the second.
Economists and market historians seem to agree that this is more than a typical, cyclical slump. The problem this time around is that no one knows the quantum of damage- how deep the wounds from the mortgage mess are?-is the biggest question.Know one knows how many mortgage backed hedge funds may go kaput.Although Bush says that recession is yet to arrive people can all but disagree.Americans might want to believe him but there are no reasons for doing so.It seems years of widening fiscal deficit,living beyond their means is really going to cost them dear.As they say this economic excess need to be set right.It seems the ghost of imprudent fiscal policy over the years will haunt the Americans for the times to come.
US recession will definitely bring pain for Indian economy.Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking. The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring down oil prices to very low levels and cool down the boom in commodity prices being witnessed the world over.
Technically it takes two consecutive quarters of shrinking economic activity i.e. negative GDP growth to confirm a recession. Although no political authority has officially declared a recession many economists now believe that US is already into recession.Some are equating it withv the Great Depression while rest with 1970’s ‘stagflation’ crisis. The US economy has already fallen into a recession, according to 71 percent of 55 economists surveyed by The Wall Street Journal.
Billionaire investor Warren Buffett claims the United States has already fallen into recession and warned that shares prices still may have some way to fall.He believes that a sharp slowdown is already underway marked by rising oil prices which may ignite inflation in a “serious way”.He also backed out from the offer to reinsure $800bn of government-issued bonds underwritten by MBIA, Ambac and Financial Guaranty Insurance.Former Fed Chairman Alan Greenspan wrote in the Financial Times in March that the financial crisis — which he said would likely be the "most wrenching" in the United States since World War II — would end only when housing prices stabilize.
David Rosenberg, chief North American economist for Merrill Lynch, believes that the US has entered its first full-blown economic recession in 16 years.He feels that the parallels to the 1970s go much deeper than just the shock of record oil prices, which tripled during the 1973-1975 recession and have seen a similar rise in recent years. Then as now, food prices rose along with energy. Then as now, declining home prices gave homeowners ulcers over equity. And the dollar, which held up fine in the 2001 recession, is falling now even more than it did in the early '70s — 9 percent then on a trade-weighted basis, 14 percent in the last year, according to the Federal Reserve. "The mid-1970s is the best template," believes Rosenberg, "if there is any."
If the situation is similar to 1970’s then more is yet to come.That era saw Standard & Poor's 500 index fall 36 percent from its peak to its trough. Right now, the S&P 500 has only lost 15 percent from its record highs of October 2007. According to a new survey by Duke/CFO Magazine nearly 90 percent of chief financial officers of global public companies don't see an economic recovery coming until 2009.
The last time the U.S. economy tilted into recession was 2001. And it was an entirely different animal. Investors bore the brunt of that downturn as the stock market shook off the excesses of the late-'90s technology boom. Encouraged by their government — and fortified with tax rebates in their pockets — Americans kept spending. Perhaps most importantly, there was no reason for anyone to doubt the stability of the financial system. There was no credit crisis to speak of, and the housing boom had yet to begin.Dollar had not weakened to this extent. "I think the current financial crisis looks to me like the worst one since we got into the Depression," says Richard Sylla, who teaches the history of financial institutions at New York University's Stern School of Business. Almost half the economists surveyed by Wall Street Journal said a recession this year could be worse than the 2001 and 1990-91 downturns. The economists, on average, forecast meagre economic growth - just 0.1 per cent at an annual rate in the current quarter, and 0.4 per cent in the second.
Economists and market historians seem to agree that this is more than a typical, cyclical slump. The problem this time around is that no one knows the quantum of damage- how deep the wounds from the mortgage mess are?-is the biggest question.Know one knows how many mortgage backed hedge funds may go kaput.Although Bush says that recession is yet to arrive people can all but disagree.Americans might want to believe him but there are no reasons for doing so.It seems years of widening fiscal deficit,living beyond their means is really going to cost them dear.As they say this economic excess need to be set right.It seems the ghost of imprudent fiscal policy over the years will haunt the Americans for the times to come.
US recession will definitely bring pain for Indian economy.Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking. The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring down oil prices to very low levels and cool down the boom in commodity prices being witnessed the world over.
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