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Musicmystery -> RE: Global Economy = Global Recession/Depression? (5/24/2010 6:52:39 AM)
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quote:
Hang on to your hats, it looks like it is going to be a bumpy ride, folks.
global economy=global depression, it's really not far fetched at all.
Yes, it is far fetched. Nor will it be such a bumpy ride. Read the article.
First, it's talking about psychology, not economic fundamentals, and about an overreaction to a few small events due to the credit crunch from which we're emerging. And its feared consequence is a stock sell-off, which also has nothing to do with economic fundamentals. Even that is speculative.
"The risk of a worst-case scenario is still considered remote. European countries have pledged hundreds of billions of dollars to aid indebted neighbors that run into trouble, and they say they are committed to fixing the continent's larger economic problems. The euro and U.S. markets were both higher Friday after the German Parliament approved a key piece of that support program. A renewed effort by the U.S. Federal Reserve to ensure that European banks have adequate access to dollars has generated little demand -- a sign that a feared shortage of cash is not in the offing.
"U.S. banks are not heavily exposed to the weaker European countries, Fed governor Daniel K. Tarullo said in testimony on Capitol Hill last week. Banks are in better shape overall, after fresh infusions of capital. Meanwhile, the U.S. economic recovery has been strengthening through the year, with jobs added in five of the last six months, and recent consumer spending and industrial output stronger than most forecasts."
It's people like you, scared over imagined scenarios, not anything economic. So others take advantage of your panic.
"There are some positive impacts in all this for the United States.
"For one, uncertainty about European government debt has driven global investors toward U.S. government bonds, which in turn is pushing down long-term interest rates. The 10-year Treasury bond had a rate of 3.2 percent Friday compared with nearly 4 percent last month. Those lower rates should flow through to private borrowing, helping Americans getting mortgages or businesses looking to grow.
"The European panic is also lowering the price of oil and other commodities on global markets, potentially making it cheaper for Americans to fuel their cars and heat their homes. A barrel of oil went for about $70 on Friday, down from almost $87 on April 6.
"A final positive for the U.S. economy is that the stronger dollar will help keep inflation in check by reducing the cost of imports. That, combined with renewed worry about the strength of the recovery, is likely to give the Fed some leeway to delay raising interest rates above their current extremely low levels longer than it would have otherwise.
"The most precise comparison is to the East Asian financial crisis that enveloped Thailand, Indonesia, South Korea and other nations in 1997 and 1998. There were widespread fears that the crisis would damage the U.S. economy, including through a financial contagion effect. The Fed even cut interest rates in the fall of 1998 to try to forestall a weakening in U.S. growth.
"But there was little obvious impact on the U.S. economy, which grew 4.5 percent in 1997, 4.4 percent in 1998, and 4.8 percent in 1999."
Can there be global recessions? Sure--happens to economies regularly. But again, resources, needs, wants, and opportunities don't vanish. Good times and bad, there are always markets.
If you need a lesson from this, remember to save during better times, and then down times will be simple.
Now, if we DIDN'T have a global economy, we'd already be in a national depression, as a significant chunk of GDP is exports, and higher prices without imports would constrain demand domestically--as well as jobs.
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