In an unprecedented move five major central banks of rich nations including the Bank of England, the US Federal Bank, European Central Bank and the central banks of Canada and Switzerland have come together to inject new money into the global economy to ease the financial crunch that is threatening recession in the western economies. Up to $110 billion in cash loans will be available to the world money market in the form of cash loans to be made available though auctions. The pertinent question that now arises is whether the new money supply can uplift the growth trajectory of the global economies. The financial crises in the developed economies have assumed a global dimension with the financial institutions reluctant to lend money especially to each other. The global implication of the US sub-prime crises that triggered the mortgage market and consequent financial crises could be gauged from the fact that for the first time in a hundred years a British bank, Northern Rock collapsed. Tight lending policies adhered to by western lending institutions to prevent further financial losses have arrested the growth rate of these economies. Since the commercial banks of rich nations are interlinked with each other, they have now decided to move in unison to prevent a banking crisis turning in to a recession. The prices of the stocks of the financial and banking sectors are also showing poor performance. If the current move of the major global central banks fails then their confidence will be at stake. The banks are currently holding lots of debt and their burden would only increase worsening the current situation. Source:BBC Image:Londonsguide
With the vast oil reserves of Iraq at its disposal and having acquired supremacy over the world, US faces the worst recession this year with the prices of commodities rising every day. The food assistance program recorded the highest increase with 28 million people using food stamps to buy food. The food assistance program launched in 1960 finds the highest number of takers this year as the country fights hard to feed its people. It is the ordinary American that is the victim of housing foreclosures that forces them to lose their homes, employment is scare as many continue to lose jobs due to the downturn of the local industries. Michigan is facing a mini-recession with its car industry collapsing and people losing jobs, 40 states have seen an increase in the want for a food stamp and the numbers have risen by 10% in more than 6 states which include Arizona, Maryland and Florida, the home of most of the Hollywood celebrities. Food stamps are actually electronic cards that can be swiped to buy food. Prices of food items have risen so people cannot buy like they used to even with the use of food stamps. A country which spends millions on its military forces to liberate countries from tyrant rulers, a country having nuclear powers, a country that pledges to eradicate terrorism from the world, a country having military troops in all parts of the world; such a country facing its greatest recession clearly indicates that while the government is busy looking after the world, they fail to look after their own countrymen who suffer due to employment while the best brains around the world find jobs in US. It is time for the upcoming government to recognize the crisis in their own country before they implement their foreign policies across the globe.
This is certainly a bad news for the whole world as employers in the U.S cut the most workers in five years last months. According to the Labor department in U.S, employment fell by 80,000 jobs in March 2008. So it is the lay offs in five years. Some economists have now convinced that the economy is in recession, but some have admitted that U.S is in its early stage of recession period. Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York, says, There doesn’t appear to be any silver lining. It shows that we’re right in the middle of a recession, our expectation is that it will be a longer recession than the last two, and we’re just in the beginning. The economy is suffering the effects of a housing collapse, a credit crunch and a financial system in turmoil. Due to this people and businesses are bound to hunker down, crimping spending, capital investment and hiring. Those things in turn further contribute to weaken the economy. The Workers from construction and manufacturing areas are largely hit due to slowdown. The interest rate by Federal did provide a short-term boost to financial markets. But these gains have been more than wiped out by the fall in markets throughout March. Certainly it is big problem for President Bush who has been criticized by opposition leaders on many external and internal matters of the country. There is need to address longer-term economic needs by developing alternative energy sources and boosting investment in education and worker retraining.
After the US financial institutions created a sub-prime lending mess by giving easy loans to unscrupulous borrowers that resulted in a credit crunch sliding the economy into recession, discussions are now underway on how to stem the current crisis. The free-market capitalist US economy is now depending largely on the federal government to lift the economy from the current recession. The pertinent question that arises is which route the government should take to resolve the crisis. Political opinion is divided on the issue. Senator John McCain, the Republican presidential candidate, has emphasized personal accountability of the Americans. McCain does not want the government to bail out the small borrowers and the banks whose irresponsible behavior triggered the current crisis. On the other hand, the Democrats disagree with McCain. Senator Hillary Rodham Clinton wants the government to do more. According to her, in today’s economy the trouble that starts on Wall Street often ends up on Main Street. If government intervenes, what remains to be seen is who would have to bear the burden of the crisis – the taxpayers or the banks and the borrowers. With fear of foreclosures, erosion of household wealth and escalating inflation, any federal government spending to bailout the troubled banks and the loan defaulters will shift the burden on taxpayers. However, can government intervention actually help the economy? The federal government had already introduced tax rebates and spending programs to make consumers spend more freely. Debt aversion is in fact not bad because increased saving stifles growth and history tells us that debt aversion is what prolonged the Great Depression. Debt is bad only when it fuels consumption with no long-term benefit. Even with the housing market continuing with its correction, housing remains an intelligent debt. With the end in the housing market correction, the next growth cycle will begin and smart investment in real estate will pay off.