Wednesday, April 30, 2008

The American recession

The global slowdown in economical progression is understood to have been caused by American recession. Well, most of developing countries on this planet depend much on American economy. After all America is the biggest importer of goods and service. What caused American recession is a matter of great debate these days. Recently I found some interesting reports hitting the headlines of some leading dailies. While surfing the net I stumbled across a site where renowned economist Prieu Du Pleissis blamed four factors for this development. They sound the same what most of the experts diagnosed. First of all , the slowdown in US economy though drawing attention in recent months but it started in no less than six years ago. The wages in US is traditionally high. There a taxi driver earns about $250 per day. Where as in India they earn in terms of USD about $5-6 only! Here is the key for the reason why US heavily has to depend on outsourcing. To remain competitive, most of the US companies outsource overseas what can be outsourced. This results in rise in unemployment in their own country. So, this time it is major issue in their presidential election campaign too. Greater the unemployed population lower the demands of consumer goods and services. Lack of technological innovation during last decade furthered the problem. That you can find when India with it`s “Nano” , the cheapest car in the world, like T-Ford in America in the last century , is becoming more innovative recently. But nothing significant has come out on the land of Ford in the current century or the last decades of previous one. The second reason is spiraling rise in oil price. The car culture in US demands more and more oil besides in some part of the country needs huge supply of oil in winter for warming. Sourcing oil overseas ensures steady outgo of dollars. Earlier a good percentage of the same dollars found their way back in the form of US Federal Bonds being considered safe investment by oil sheikhs. With the true value of dollars waning fast, the attraction of Federal bonds as investment is waning too. The petrodollars are finding their way to emerging market for better returns or being invested in gold and silver, the safest heaven. This is aggravating the true crisis of US balance of payment in “current account “ as well as “ capital account’. Though that is another story, let us look again at the US recession. The third reason is “ sub-prime” crisis. It is the bad housing advance, where a possibility of repayment is remote. Americans being a consumer`s society, they usually spend more than they earn in common households. So, where from the money comes? It is by the way of raising loan, keeping house on mortgage. All those houses were revalued in past years since US housing properties were considered getting dearer in those years. With the housing price going down in tandem with recession, the balloon bursts. You know the rest, one after another banks are either writing off their losses or going themselves bankrupts. In the financial industries, there are all around curtailment of employment. Thousands of people have been laid off by many banks and other financial companies. Those who lost the jobs, joined the bandwagon of already oversized unemployed army. The last reason is bit different. Lack of consumer confidence, this is deepening recession – this merely a symptom of ailment, lack of competitiveness. This ensuring the outsourcing while robbing the Americans their jobs. It is major issue in current presidential election campaign.

1 comment:

The Blogmaster said...

I live in America and there is no debate over here about what caused the recession. It was simply and clearly George W. Bush.