Sunday, 7 August 2011

Is 2008 a prelude of the bigger crisis.

If we noticed what had happened to our world economy these few months, we will realised that Euro zone are having members that chalk up high sovereign debts. They had faced the blunt of downgrading, and the consequences of high risk borrowing from international credit market. Indirectly, they had spread it among their members countries like an infectious virus. No doubt the ECB and IMF had tried to savage the situation by pouring extra funds and monetary support.

When we turn our focus to US, we realised that they themselves are facing this sovereign debt and risk of default. However, they managed to avoid default by 2nd August, but still unable to avoid a downgrade of its AAA rating. Unemployment is still high, and slashing of job is still on going. No doubt companies were reporting quarterly earning, but is it the true earning that we should see from US since it is a domestic economy that supported by domestic spending?

Next, turning the attention to Asia, China is facing the possibility of hard landing in their economy, especially with their asset bubble looking to burst soon. Australia itself is not that good either. With the strong demand from their currency, this will indirectly hurt their export and increase the risk of inflation also. With the heavy debt burden, Japan maybe running out of ways to bring their economy back to life.

If you can understand the trend here, you maybe disillusion by the recovery that had taken place since later part of 2009. But is it a real recovery supported by growth and employment? It is not. US is still having high unemployment, Spain has 20% unemployment among the Euro zone, and some other countries too. Growth in certain market is not well supported too. The stimulus packages introduced by different countries may not be effective to lift confidence and assurance to our economy.

We believed that there were no true recovery in our world economy. Some of the emerging markets maybe in a better position than others, but there are not entirely safe either. If companies decided to cut cost and foreign investment, they may have to pull out of the overseas venture to focus more on their domestic market. Job will be lost at a time when job lost will mean less spending in their own market. For countries that are shifting to domestic play in their economy, this will impact themselves too. Even if they depend on credit to sustain, this will reflect out the origin of all credit crisis; bad borrowing and irresponsible borrowing. In the time of panic, cost of borrowing and cost of insuring the borrowing will rise to ridiculous rate. That boils down to the question of whether these borrowing can be sustained and the ability of repayment by these countries.

2008 economic crisis had shown us the total impact and destruction of this world's economy. Nevertheless, the crisis started from private entities. This time round, if you notice, safe haven has been the talk of the town. Everyone is trying to dash into safe haven. How safe is it? How great the impact will be if we face another recession? Let's put it in this way, if 2008 is just a prelude, the possiblilty of another crisis in making is the real world economic depression that we will never imagine. Good luck with prudent investment.

Below is an article reasoning out why the world economy may not had recover also.

Analysis: World poorly placed to meet new economic crisis


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