Was The Global Financial Crisis a Blessing in Disguise?

Global Financial Crisis Is A Demonstrable Wake-Up Call To The World

First Published: August 28, 2009 ADawnJournal.com

It may not be a universally popular opinion, but there are certainly more than a few people who will tell you with a straight face that the global financial crisis had to come when it did, and moreover that it was the best thing that could have happened at the time. Most of these people will generally whisper the suggestion quietly rather than say it loud enough for a recently-unemployed eavesdropper to hear, but is there any chance that they actually have a point? Could we come out of the crisis stronger as a world, as nations and as people?

What cannot be denied is that we who live in countries where the mass media have a tendency towards hyperbole probably took longer to accept that the crisis was a very real fact. As has also recently been evidenced by the swine flu pandemic, there is a tendency after a while for people to become fundamentally skeptical about anything that they have not seen for themselves. Even now in more than one nation, there are people saying that the pandemic was exaggerated because comparatively few people have died as compared to the Black Death or Spanish flu epidemics. That it was largely due to speedy reaction from governments that we didn’t see much worse seems to slip people’s minds.

As with the pandemic, so with the crisis. Except, in this case, the symptoms worldwide came before the panic, but were largely ignored by many. Global economies fell like a house of cards, but it was not until the trickle of bad news turned into a torrent that many people realised just how bad things had got. This wasn’t just a minor bump in trade, but a crisis that would render many unemployed or bankrupt – or worse. The effects have been awful but could it be said that, given the inevitability of something like this happening, it is best that it has happened now rather than getting even further out of control?

One thing that has come out of the global financial crisis is that people have begun to see money in a more enlightened way. Before the crisis, many people saw their credit card as an extension of their financial solvency, rather than something which could very easily ruin it. There was also incredible snobbery towards people who bought things second-hand or cheaply, as conspicuous consumption reached its zenith. Now, it is almost cool to be a thrifty shopper and an assiduous saver.

There have been knock-on benefits in other ways, too. We now seem to have a tendency to recycle more. Consumption and waste are becoming watchwords for us all, which may well be a lesson that bears fruit in years to come. And yet, the fact remains that this crisis has left millions without jobs, without homes and many without hope. It cannot be said with any real measure of truth that this crisis has been a good thing. What it has been – hopefully – is a demonstrable wake-up call to the world that when someone yells “crisis!” it might be worth paying attention.

US Recession Finally Easing?

US Economy May Finally Be Moving Towards Recovery

First Published Date : September 6, 2009 ADawnJournal.com

Although most of the major economies in the world have been through no small amount of turmoil in 2009, most eyes have been turned towards the performance of the US economy due to the nation’s status as a world leader. This is one time when America would have been prepared to cede the limelight, however, as the financial predictions chart has constantly shown the States and the United Kingdom as the countries in deepest recession and with the latest predicted recoveries of all. Now, however, there are coherent signs that the US economy may finally be moving towards recovery, with second-quarter showings in 2009 looking better than had been expected. The economy still contracted, but only by one percent.

To make a comparison, the January through March period this year showed a retraction of more than 6%, an opening to the year which was enough to make many wonder aloud whether the US would see any kind of recovery before 2010. The fall was the worst for almost thirty years and American’s third straight contraction. This latest marks the fourth in a row – clearly not what would be desired – but the movement is certainly more positive than anyone had been led to hope. It would be optimistic to suggest that Q3 will show growth in the numbers, but Federal Reserve Chair Ben Bernanke has been moved to suggest that the recession will be over for America later in 2009.

Reasons for the better performance are believed to be something of a mix, with businesses smoothing off spending cuts and government spending increasing. A better trade performance with other nations also helped, while consumer spending did decrease, as the results of businesses going to the wall made themselves known, people having to dip into their savings and being less able to rely on the equity in their homes for a shield against the ravages of unemployment. However, given the forecasts for how 2009 was expected to head, the news is broadly a lot more positive than could have been expected.

Some of the credit from economists has gone to the stimulus package fronted by President Barack Obama, which cut taxes and increased the level of government spending. This plan allowed the economy to stabilise somewhat by lessening the burden on services and businesses, keeping some companies alive and allowing support to be provided where needed. As yet, though, economists believe that the best of the package’s results has yet to come, with the second half of the year expected to see the outcome bloom and the early stages of 2010 considered to be the point where the full extent of the stimulus will be evident.

Economists know to couch their optimism in cautious language, and there are no guarantees as things stand, but money does not always behave like we want it to, so there is plenty of reason for cautious speaking. The advice seems to be that America should stick to what it is doing now and monitor the results. If these are as positive as expected, then 2010 will see a world in recovery, given the improvement in economies elsewhere.

European Heads Lead Calls For Bank Regulation

Debate on Bank Regulation

First Published Date : September 7, 2009 ADawnJournal.com

The G20 summit in Pittsburgh later in September will feature some lively debate on bank regulation after the heads of Europe’s three most established economies all put their names to a letter stressing that the 20 richest countries in the world must take steps to regulate their banking sectors. British Prime Minister Gordon Brown, German Chancellor Angela Merkel and French President Nicolas Sarkozy penned the joint letter ahead of this month’s summit in the United States, each of them aware of the revulsion which has met increasing stories of bank bonuses amid the financial storm of this year and last. Despite likely allegations of populism – which would hardly be inaccurate – the words of the three are likely to be echoed by voters.

Much of the ire raised among the financial crisis has been the result of banks which have taken large amounts of government bailout money moving to pay out much of it in bonuses. This puts some banks in a tricky position. In many cases these bonuses are a contracted issue and withholding them would put the banks in breach of their contracts to employees. However the bank is performing on the balance sheet (and those requiring bailouts have clearly not been touching the sky), if the individual executives have been delivering the numbers stipulated in their contracts then the bonuses are owed to them by right. As much as the rest of us may be moved to shake our fists at the injustice of it all, ignoring contract terms would put companies on shaky legal ground.

The moves proposed by Europe’s Big Three, then, will deal more with what can be offered in the future – and it seems that they have little thirst for a return to the practices which many blame for the crisis itself. In the words of the letter the lifting of financial tensions has resulted in many of the world’s financial institutions assuming that a return to old practices could be acceptable. It is many people’s view that “bonus culture” encouraged high-risk practices which are blamed for much of the difficulty in which the global economy still finds itself.

Although the three leaders collaborated on the letter, it is known that they are not in total agreement between themselves. While Nicolas Sarkozy views it as essential that bonuses should be capped at a certain level, his opinion is not quite backed by the Brown administration which feels that the plan is unworkable and favours the option of clawing back some of the bonuses after a period of time if long-term results are seen to have suffered. Consensus may be hard to reach in time for Pittsburgh, but publicly leaders are saying that it must be reached then in order for a firm line to be drawn on the subject. With the recovery of stimulus payments also set to be discussed in Pittsburgh, it could well be that there are disagreements aplenty around the table when the finance ministers sit down to talk.

Recovery Talk “Premature”

The Economy Is No Longer In Free Fall

First Published: May 17, 2009 ADawnJournal.com

As tempting as it is to believe that the economy is well on the way to recovery after the trials and tribulations of the past couple of years, it is important not to just take any sign of improvement as a signal that everything is hunky dory again. The nature of the beast is that we are going to have some false alarms before everything is back in shape, and there may well be people who get caught out speculating in a financial environment that does not do justice to their hopes and expectations. A good example is the recent news that financial indicators are showing positive signs. They are, but that is not the full story.

Data from both north and south of the Canada-US border seems to suggest good news – that the economy is no longer in free fall as it was last year and for the early parts of this one. While this is good news, a stabilization is by no means the same thing as a recovery, and neither is it a guarantee nor even a predictor of immediate recovery. We have had the free fall period, and it was longer than anyone would have hoped. Whether a recovery could even be trusted to be definitive if it were to happen right now is questionable. There is a lot to get through yet before we can confidently herald a recovery. Patience is a virtue. We may have to wait for growth to kick in and be grateful for the recent improvement from terror to stability.

One possible reason for the need to be patient on recovery is that retail sales in the States have fallen. American shoppers have, after a brief rally, retired to the sidelines amid uncertainty over the strength of this new found stability. Without an increase in retail sales there is less on which to base a recovery, as the stimulation of an economy relies quite profoundly on the spending power of its citizens. Not only on their spending power, in fact, but also on their willingness to spend. If shoppers show concern over the ongoing state of an economy, it can make them reluctant to go out and spend, and more likely to save their hard-earned cash. Good and wise for those people, but less so for the economy.

Other indicators which seem to show a lack of immediate recovery include the fact that Canadian airlines are finding it difficult to attract passengers. More people flying is a sign of a thriving economy, as satisfied business individuals reward themselves with holidays that they feel they can afford. As things stand, these individuals are thin on the ground (and in the air) – which, in addition to news of a continued fall in worldwide demand for petroleum oil, points to a low level of economic activity both in Canada and abroad. It is, however, easier and better to approach a recovery from a point of stability. One hopes that this will come sooner rather than later. For the moment the message is “stay tuned”

What will things be like after the recession?

After The recession, World’s Economy And China

First published: Published Date : May 24, 2009 ADawnJournal.com

For some time in the last couple of years, the question that one dared not ask was “What would we do in a recession?”. Then the bad news about the financial state of the world started filtering out and the question was amended slightly to “If this continues, will we see a recession?”. This time the question was answered in short order, as things got worse with little delay, and the new question was “How soon will we be out of this recession?”. As yet, opinions differ on how and when the world will lift itself out of the financial crisis that is uniting many of the most powerful economies in the world in a sense of real and tangible panic. Another question is being asked, too – “What will things be like after the recession?”

The world’s economy has taken something of a battering over the last couple of years. There are countries who, against the statistical likelihood, have prospered, but they are generally economies that were termed as “developing” and had less of an established infrastructure, thus were less at risk from the tremors that ripped through a number of markets and industries. The major economies of the world are largely interlinked through mutual investment agreements and free trade, and thus when one of them hit a brick wall, the rest were always likely to feel some of the impact. Those countries which were just getting up to speed were always likely to remain outside the clutches of the recession.

When the recession is over, then, one thing that we are likely to see is some new major players on the global economic stage. It would be short sighted and insulting to assume that the countries which have big reputations now will simply retake their places at the top table when things pick up. Countries with developing economies that are further along than others may be the ones to really benefit. Look for Brazil, India and China – three countries with massive populations, a great deal of manpower and growing economies – to come to the table with a significantly improved bargaining position. There are ill-effects from this recession for all three, but all have been able to deal with it better than the “major” economies, as they have been insulated by a lack of complicity in the failures of the global economy.

China has for some time now been seen as the world’s next great superpower. Its time may come sooner than expected due to the compression of the field that has resulted from the recession. China has embraced capitalism unofficially, and its major technological development in recent years allied to a huge workforce makes for an impressive armory. India, another nation with a billion-plus population, is less far along but has not suffered the slowdown that the long-time leaders have and so can continue its development. Brazil, for its part, is a large landmass with a sizeable population and its government has been praised for its economic handling. All of the above three nations have their own specialized industries that are of major interest to the world, and all will hold strong bargaining positions going forward.