We have been watching the performance of the US Economy very closely and following the news concerning it ever since the collapse of the housing mortgage business and the resultant chaos. We are reproducing below the two headlines that appeared in The New York Times:
Saturday, March 8, 2008, Compiled 2 AM ET Sharp Drop in Jobs Adds to Grim Picture of U.S. Economy by EDMUND L. ANDREWS NEWS ANALYSIS - End to the Good Times (Such as They Were) By DAVID LEONHARDT If history is a reliable guide, a dismal jobs report suggests that the recession of 2008 is now unavoidable.
The present recession is inevitable and unavoidable. We were amongst the first few to forecast the recession in various articles. We are giving list of the three articles concerned with the subject and they are available for access in the list of our articles at evancarmichael.com Economic Conundrums as being witnessed in USA today - published on November 20, 2007 Credit Crunch in USA published on November 29, 2007 Stagflation, Credit Crunch and FRB Policies published on December 12, 2007 We are not happy that recession has set in but are happy about the accuracy of our forecast and prediction when majority of the economists failed to foresee the event. This was also the case in the recession in the year 2000 when the dot com bust took place. This time it is the housing mortgage bust. The US Economy will witness growth, stagnation, recession and inflation simultaneously in various sectors over the next one to two years. The economy will reach its equilibrium but will take its own time. What the US Government and FRB should do now is to go about looking for ways to minimize the impact of the recession on the commons. The most common characteristic of a recession is job losses. The rich will not suffer much. They will earn less than what they are used to. That's all. It is the poor who will get poorer in such a scenario. The middle class will have to tighten their belts further.
The health of the US Economy is far too important for the health of the global economy. When the US Economy is in doldrums, some very poor and innocent man or woman or child in a far off corner in the globe will starve, because the poor thing cannot get even one square meal a day. That is a grim reality which the policy makers should accept and take proactive action. Unfortunately, the decisions taken so far are far from satisfactory. The US Government and FRB are attacking the symptoms and not the root cause.
One question that often comes up is that as to why the Japanese, European, Canadian and British economies do not contribute to the growth of developing countries as much as the US Economy, when they are equally large. The answer is simple. The US is a consumption oriented society. An average American does not save much. Savings are basically postponed consumption. Majority of the Americans are in debt. The estimated debt per average American is USD 5000. USA is the largest single importer of anything under the sun. It has a huge trade deficit. One way the developing countries can help US and their own economies is by importing American goods. As the dollar is weak against other leading currencies, it will be more economical to import goods from USA, assuming the quality levels are maintained. This is the reason large American corporations like HP do well because they export and do not depend much on the domestic market. Dell is suffering because it has a large domestic market but not much of exports. However, as the exports pick up, the dollar will no longer be weak. When that happens, exports will become difficult. This cycle keeps repeating like a wheel. What goes up must come down and what goes down must come up.
While the Japanese, EU and UK economies may be large, they are export oriented economies consisting of very small countries and with small domestic markets. They do not import much. They have set up various artificial trade barriers to discourage imports and encourage local industries. Their economies will collapse if their exports run into some problems. As a result, their currencies are fairly strong. When their currencies become too strong, they will find it difficult to export. This is the reason many Central Banks deliberately keep their currencies artificially weak to help exporters and deter imports. This was done by the Japanese Central Bank about a decade ago. At another stage they left the Yen to float freely and find its own level against other leading currencies.
Since majority of the American companies depend on the large domestic market, the weak dollar is hurting the American economy more, rather than helping it in exporting its goods. The FRB does not have much of a choice. It has to choose between the Devil and the Deep Blue Sea. The FRB leadership has failed over the last decade in managing the economy. The only solution FRB comes up with is cutting the interest rates. They will soon reach a stage when they cannot cut any further. Now they want to pump in USD 200 billion into the economy. Where is this money coming from ? Are the consumers underwriting it ? If not, it will lead to more problems.
Americans can help their own economy to stabilize by buying more American made goods and services, even if the quality levels are not maintained but Americans don't do that. A Britisher will buy a Rolls Royce or Bentley or a Jaguar. A German will buy a Mercedes or BMW or Porsche. A Frenchman will buy a Renault or Peugeot, a Swede will buy a Scania or a Volvo but none of them will buy a Toyota, not even a Lexus. Toyota sells more cars in USA than GM and Ford. How many Japanese buy foreign products ? If Americans don't buy their own products, who else will buy ? That is the only way you can help your own national companies to grow and prosper. The quality levels will automatically improve because the volumes will justify it. It is also good for the local economy in the long run. Having a national pride and patriotism helps in both bad and good times.
© Copyright. Written on March 15, 2008. All rights reserved
Recession 2008 in USA - To learn more about this author, visit Madhavan T Gopalachary's Website.
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Madhavan T Gopalachary
(Visit Madhavan's Website)
Madhavan Gopalachary, nick name "madgopes"
(g pronounced as in go) given by IIT
classmates, is a Mechanical Engineer and
an alumnus of Indian Institute of
Technology, Madras having passed out
specializing in IC Engines &
Thermodynamics.
He has nearly 35 years of experience in
the Corporate World. He started off as a
trainee and handled sales, marketing,
manufacturing, product management, profit
center management, strategic planning and
corporate development including R & D in
various organizations and at various
levels before becoming a CEO. His last two
professional assignments were at CEO level
before embarking to start management
consultancy business on January 01, 1998.
He has worked for British, Swedish MNCs as
well as very large Indian business houses.
He has spent a large portion of his time
from June 1998 till date in East African
Countries practicing as an independent
Management Consultant.
More details can be obtained at the
following web sites:
mmg.name/
mtg.html
mmgconsu
lting.biz/
Madhavan's articles can be accessed at www.madgopes.com
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