Saturday, September 6, 2008

Are we over with the financial crisis?

Probably the much awaited part of the year has turned up. A slump in world oil- prices along with appreciation of US dollar has made everyone to think over whether the undergoing burgeoning pressure faced by the world has come to a standstill. Are we really over with the financial crisis? Economists all over the world have projected global economic conditions have will remain difficult for some time. However, future prospects seem good as it is predicted that economy will recover due to growth in China and rest of Asia. It is viewed that equity markets would regain strength over time, but it is not possible to tell when it would occur. I strongly believe that there is nothing to worry about as this phase of continued difficulty due to lower growth along with higher inflation will pass out eventually just like economies the world over have faced similar situations over different periods of time, if not worse, and have recovered.

The latest stats indicate that emerging economies like Brazil, India and China have been performing well and it is expected that the global economy will grow at 4 percent over the next fiscal year. Some economists have argued that lower oil prices will have a deflationary effect on the world economy, since this will in turn lead to high consumer spending as well as exports. In most likelihood, it is order to suppress this phenomenon that governments all over the world have decided to hike the interest rates for loans as this move will pose a large impact on consumer demand. So does that mean that after oil prices drop, the situation would return back to, well, normal? This is a rather tricky question to be answered so soon, since we have all been witness to how many times the stock markets, the foreign exchange, loan rates, and practically everything fluctuate so dramatically in the last few months. But yet, all we can do is hope.


CynicusEconomicus said...

An interesting post. The oil price largely depends on the balance between contraction in the OECD and expansion in the emerging economies. How will it balance out? I think oil has a way to go down yet!

Sean Carmody said...

Many would attribute falling oil prices to declining demand, itself a reflection of just how bad the economic situation is getting in the US and Europe. I have no doubt that the cycle lives on and, as you say, recovery will come. However, I suspect it is premature to call the bottom: there is plenty of room for markets to decline further. What started off as a liquidity crunch in the financial markets has well and truly taken hold of the "real" economy in many developed nations.

BobS said...

Here in the USA it looks like our government is about to take over two huge mortgage companies as part of an ongoing bailout of our collapsed housing industry.

The USA has been living off of debt for too long. This partly due to a US policy of a low wages for working class Americans which encouraged people to borrow to pay for housing, healthcare, schooling etc.

That did work to create a widening gap between rich and poor as wealth concentrated at the top.

It also contributed to the global financial crisis.

Unfortunately as in 1929 before that great crash, US foolishness has an effect far beyond its own shores.

Jim Lagnese said...

Lower oil prices will be a boon to manufacturing and transportation, whose margins have been hit hard by rising energy costs related to oil. As far as the financial mess with he mortgage industry in the US, my opinion is that those that were greedy on the consumer side and the banking side should take the hit. If the government bails them out, no one learns anything, and this will happen again. Now for Bob's comment. Yes, the US has been living on credit too long. I agree. It's hidden inflation. Prices go up and instead of paying for goods with earned cash, americans borrow, either through credit cards, home equity or over-extend themselves in a mortgage. It's become an indentured servitude. Average salaries have been kept low, because companies know people will borrow to afford things. If people only bought with what they earned, the economy would deflate. Thanks for the topic in my next blog post.

Rogue Economist said...

lower oil prices will definitely be a help for suffering consumers. But like Jim said, a lot of people (particularly in the US)are still in debt, and that will still keep the financial problems close by.