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Friday, 29 July 2011

Great Recession of 2007-2008

Economic growth has slowed down sharply in the USA with consumer spending at its weakest level in two years. Growth in the USA was 0.4% between January and June 2011 with the USA’s economy growing at an annual rate of just 1.3% between April and June compared with 2.3% for the last quarter of 2010. Also the total loss of economic output in the 2007-2009 recession is now thought to have been 4.1%.This data has caused shares to fall with the Dow Jones falling by 130 points and the FTSE 100 index down 84 points to 5789.

Nick Parsons head of research UK and Europe and global of FX National Australia Bank says ‘‘It is hard to conclude other than that the US economy is in deep trouble’’ with ‘‘A very weak labour market, falling real incomes and house prices are hardly the basis for a sharp pickup in growth through the summer months and when a compromise agreement over the debt ceiling is finally reached, it is sure to contain measures to reduce the growth of government spending’’. Economists have said the data could prompt the Federal Reserve to restart its Quantitative Easing (QE) programme to put more money into the economy.

James Knightley Senior Economist at ING has said ‘‘the recession was deeper and started earlier than previously thought. This further reduces the prospect of any Fed policy tightening and offers some support to those arguing the case for QE3’’, the USA’s economy contracted by 0.3% in 2008 and in 2009 by 3.5%, if the current rate of unemployment of 9.2% is to be reduced the USA needs a growth rate of at least 2.5%.‘‘At the time, we were thinking that the numbers weren't as bad as what we seeing’’. Carl Riccadonna an economist at Deutsche Bank in New York says ‘‘Now we know that the recession was deeper than we thought’’ the contraction in real terms was 5.1%.

12 comments:

  1. Are we on the edge of the economic vortex?

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  2. Debt crisis threatens not just America but Europe and the World economy if the USA defaults on its borrowing. Democratic Senator Charles Schumer has said ‘‘the country's in crisis…This is not a time for politics as usual’’. If there isn’t a deal by Tuesday 2nd of August 2011 the United States of America will not be able to borrow more money to bridge the gap between revenues from taxes and outgoings which include the interest on those debts. Welfare recipients in the USA may be the first not to get any money and federal state workers could be asked to work without getting a pay cheque. The World’s financial bond markets would fall into chaos pushing the USA, Europe and the global economy back into recession and possibly trigger another Great Depression.

    This isn’t just an economic crisis but also a crisis of democracy with the right-wing conservative ‘‘Tea Party’’ movement holding the people of America, Europe and the world hostage. Larry Sabato, a professor of politics at the University of Virginia says ‘‘you have people in Congress who will not sit down and compromise, compromise is a dirty word’’. A hard-core of House Representative Conservatives are prepared to put at risk the USA's, Europe’s and the world economies on the basis of right-wing ideology. Republican Senator John McCain describes the ‘‘Tea Party’’ movement members as naive, seeing the world as a Lord of the Rings battle between good and evil. Rand Paul a ‘‘Tea Party’’ senators responded by saying he was happy to regard as a hobbit.

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  3. The world is on the brink and economists fear a ‘‘toxic mix’’ of the USA’s debt crisis and chaos in the Eurozone which could trigger a new global slump. If it happens then the blame must lie with the right-wing conservative ‘‘hobbits’’ in the USA and their fellow right-wing neo-liberal/neo-conservatives in Britain and Europe.

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  4. Democratic proposal have been defeated by a 50 to 49 vote.

    A final vote on a deal may be delayed until Wednesday, one day past the deadline set by the Treasury Department to ensure the United States of America doesn’t default.

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  5. Debt deal agreed but may not save US AAA credit rating

    The USA has avoided catastrophe after a deal was reached raise its debt ceiling and stock markets rallied but it may not save the USA's AAA credit rating. On Wall Street the Dow Jones index gained 100 points, but then fell back 100 points after publication of weak manufacturing data for the USA in July. In London the FTSE 100 rallied by 83 points to 5898 but later lost them as investors moved out of shares into government bonds.

    Full details haven’t been released but a fact sheet issued by the White House shows that spending will be capped by $900bn over the next ten years and a committee will be set up to agree a further $1.5tn of deficit reduction measures. If this committee cannot agree a deal, then an ‘‘enforcement mechanism’’ will trigger $1.3tn spending reductions in 2013.

    Kevin Daly emerging market debt portfolio manager at Aberdeen Asset Management says ‘‘Avoiding the worst case scenario of a default on US Treasury obligations will not prevent a downgrade of the triple-A sovereign rating’’. Stuart Gulliver, chief executive of HSBC, said the progress made over the US debt ceiling was ‘‘very welcome’’ but warned that the USA could see its credit rating cut.

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  6. President Barack Obama has said the plan cuts domestic spending to levels not seen for 50 years. House of Representatives Republican speaker John Boehner has said the deal was a good one that met the demands of all Republicans. Barack Obama says it will initially cut about a trillion dollars from the United States government spending, ‘‘the lowest level of domestic spending since Dwight Eisenhower was president’’ and that ‘‘is this the deal I would have preferred? No’’ so we know that it’s a right-wing conservative solution that favours the rich and global finance capital and not the ordinary worker and their families. It’s a capitalist solution for the rich and privilege capitalist classes of the world not one for the people of the USA, Europe etc. The global financial oligarchy is calling the shots just as they are in Greece, Italy, Portugal and Spain.

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  7. £75billion wipe from FTSE 100

    World stock markets continue to fall due to fears that the USA may go back into recession and that the crisis in the Eurozone threatens the Italian and Spanish economies and the knock on effect for the global economy.

    EU commission president José Manuel Barroso warned the crisis was spreading and that Europe risked losing the faith of the financial markets. Barroso said ‘‘Markets remain to be convinced that we are taking the appropriate steps to resolve the crisis…We are no longer managing a crisis just in the euro-area periphery’’.

    Markets have been on a downward trend for several weeks due to fears over the USA’s and European debt crisis. The USA’S debt-limit deal raises fears that its economy will falling back into recession and that it will lose its AAA credit rating pushing up interest rates.

    The Institute of Economic and Social Research and the International Monetary Fund estimate the number of Britons who will never find work has risen by 500,000 because of the damage.

    Ros Altmann of finance firm Saga, warned retirement savers were at risk, saying ‘‘the situation is awful pension cost has shot up’’.

    (Graham Hiscott and Adrian Shaw, Daily Mirror 4/08/2011)

    http://www.mirror.co.uk/news/top-stories/2011/08/04/us-recession-fears-wipe-75billion-from-ftse-100-115875-23318079/

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  8. The FTSE 100 Index fell 191.4 points to 5393.1 at the end of the day with a mere £49.8 billion wiped from the value of London's FTSE 100 Index so that’s not quite so bad then!

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  9. Bank of England to downgrade growth forecast for the second time this year but its calculations will not take account of the current fall in the stock market in which the FTSE 100 Index has lost around 16% of its value, equal to £250 billion over the past two weeks.

    The Bank's Monetary Policy Committee had predicted at the beginning of the year that GDP would grow by 2% in 2011; three months ago it cut its forecast to 1.8%. The latest figures put growth at 0.2% for the second quarter compared with 0.5% in the first quarter of 2011.

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  10. Which nation states could be next as shares suffer sixth biggest fall in history?

    Italy (A+)

    Italy has her current borrowings well under control, indeed on some measures she is actually enjoying a budget surplus. However her accumulated national debt is some 120 per cent of GDP, way beyond what most economists regard as sustainable. Long-standing issues of competitiveness and an ageing population add to the fiscal challenge.

    Spain (AA)

    On most measures her public finances are healthier than Britain's, but Spain suffers from structural economic problems, including high unemployment and a broken real-estate and banking sector.

    France (AAA)

    France's diversified economy helped her to avoid the worst of the recession and she is politically stable. However doubts are creeping in about her ability to withstand a "contagion" effect if Spain and Italy find themselves in further difficulties. Doubts have surfaced about President Sarkozy's ability to maintain the pressure on public spending in an election year.

    UK (AAA)

    The UK has never reneged on its debts, though England did in the reign of Charles II. There is a first time for everything, though, and the threat to the UK would rise if growth remained stagnant and the Government's deficit reduction plan became unworkable. Such a loss of credibility could see a downgrade. Some economists are already arguing that the Chancellor will miss his debt reduction targets. The riots may mean social unrest becomes a factor in investors' minds.

    Germany (AAA)

    If Germany carries on accumulating other nations' debts, then her own ability to carry such burdens may come into question. Yields on "bunds" have edged up in recent months, reflecting this long-term and still remote risk.

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  11. Fear of a double-dip recession continues to haunt the markets with the FTSE down a further 51.47 points at 5040.76, and the Dow Jones Industrial Average fell to 115 points to 10875. In Britain around 40% of households have seen their finances deteriorate due to inflation squeezing the real wage having seen the fastest fall in value since 2009. Personal savings have also taken the sharpest fall since 2009 and the level of debt has also increased as the Bank of England has predicted inflation will reach 5% this year.Tim Moore a senior economist at Markit says consumer spending accounts for about two-thirds of Britain’s gross domestic product, which doesn’t bode well for the UK economy.

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  12. The Bank of England took the financial markets by surprise with the announcement that it is to inject a further £75 billion (QE2) into the British economy over the next four months on top of the £200 billion (QE1) already injected between March 2009 and January 2010.

    Mervyn King Governor of the Bank of England says ‘‘This is the most serious financial crisis we've seen at least since the 1930s, if not ever…. We're having to deal with very unusual circumstances, and to act calmly and do the right thing. The right thing at present is to create some more money to inject into the economy’’

    Michael Saunders, UK economist at Citi, says the deteriorating outlook for the British and global economy will require the Bank to ‘‘do QE on a very big scale’’ and that ‘‘We expect the cumulative total of QE will eventually reach £500bn or so, it may go even higher than that’’.

    From the recession of 2007-2008 to a depression and the most serious financial crisis since the 1930s, and we have to learn the lessons all over again as to what happens when government abdicate responsibility and leave everything to the capitalist free market after thirty years of neo-liberal economics and neo-conservative national and global governance.

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