recession in us and europe

8/13/2019 Recession in US and Europe

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September 15, 2008


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On that fateful day


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Why the cookie crumbled.


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Case study

United States of America[ A few excerps from the movie I.O.U.S.A. ]


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From the time it began at the close of2008, through the chilly winter of early 2009

and as the first rays of revival shone at the

end of the dark tunnel towards the end of2009, they have been in a denial mode

they have dreaded to use the word

recession.


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At the start they called it the financial

crisis; as the crisis deepened and financial

turned into real, they called it the slowdown;

and as their hopes touched the rock bottom,

they called it the downturn.

And then, they have begun to talk of the

revival.

But at no point they have had the

courage to grapple with the truth.


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The truth is

It is more than a recession.

It is a continental shift.


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It is the beginning of a rapid shift ofeconomic power out of US and Europe.

The shift began long ago; it was gradual

and not very obvious to the casual eye.Now the cleavage is sharp and the

movement drastic.


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It was bound to happen.

In the ultimate analysis, the global

economic power rests in the relationbetween what you owe to the world and what

the world owes you.


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Post industrial revolution Europeproduced what the rest of the world wanted;

as a result, the rest of the world perennially

depended on Europe.

And the rest of the world owed Europe

for its overwhelming imports. Pound sterling

therefore was the reigning currency.


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The rise of US was fueled by its vast

and diverse natural resources, its

entrepreneurial ingenuity and its scientific

endeavour.

But, with growth came affluence. And

affluence sapped the very frontierspiritthat

had powered its ascent to the top.


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Soon, it lost out in competition to more

hard working nations like Germany andJapan the very nations it had sought to

destroy.

And the super sized manufacturing

machine that US created could not be kept

running by just the home demand. So USventured out on


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well, all the worlds demand could

not keep that machine running ! How muchcould the poor world buy from US ?

So US ventured out on wars. Wars afterwars to keep the machine running.

But wars cost by way of materials,men and morale.


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And there begins the story of the

downturnof US.

That is the beginning of the recession.

With US, all those nations, in Europe and

elsewhere who tied themselves to the nappy

strings of US, began the countdown for the

fall.

That is the story that the movie IOUSA

relates.


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The downturn of US can be summed upin THREE deficits

budget deficit

trade deficit

savings deficit


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budget deficit


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Deficit is bad enough; but the fact that

this deficit has been financed largely throughdebt, is what makes it worse.


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The outstanding public debt as at

11:29:42 AM GMT, 21stFebruary 2010 is:

The estimated population of the US

is 307,879,465; so each citizen's share of

this debt is $40,312.52.


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Worse still is the fact that a good part of

this is external debt.

Owed to

Japan 21%

People's Republic of China 21%

United Kingdom 8%

Oil exporters 5%

Cari bbean banking entr es 5%

Brazil 4%

Hong Kong 4%

Russia 3%

Luxembourg 3%

Taiwan R.O.C. 2%

Al l other 22%


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That table is indicative of two things :

~the debtorstatus of US vis--visthe rest of the world;

~how far the seismic shocks of fallof US can reach.


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trade deficit


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As in December 2009.

Venezuela - 367%China - 215%

Italy - 109%

Japan - 94%

Germany - 73%Mexico - 44%

Taiwan - 30%

France - 26%

South Korea - 21%Canada - 16%

U K - 8%

Trade deficit as a percentage

of exports of US.


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The table we have just seen, shows to

what extent US is dependent on the rest of

the world.

The imports you cannot pay for with

your exports, leave behind a debt. And that

is how US has been piling up debt with its

major trade partners IOUs that have to

be redeemed some day or go bankrupt !


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savings deficit


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Savings are necessary for capital

formation; if you do not save, you have to

borrow. And that is what US has been doingfor so long; adding further to its burden of

external debt.

How long how much ?

The three deficits have together

brought US to the brink of bankruptcy.


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And with it all those who depended on

the crumbs that fell from the US table in itsdays of glory.

Sun has set on Dubai.


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When the global financial

crisis struck, Greece was badly

prepared after years of profligacy

and failing to rein in its spiralling

public debt. Government debt

was worth more than a full year's

output in 2009, and is expected tobe 120% of GDP this year.

The crisis could push up the

cost of borrowing for other states with

large deficits, including the UK, where

the annual budget shortfall this year of

12% of GDP is only a shade short of

Greece's 12.7%.


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New investment opportunities.


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A Tensing Rodrigues Production

recession in us and europe

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