If you have stumbled upon this blog, chances are that you know or atleast have heard about the US & UK economic... 'stagnation'. Reason, I use the word 'stagnation' reluctantly is because firstly, its not been officially confirmed (the govt. would hardly want to confirm this until the facts have turned cold and there is no way to hide it any further) & secondly, it may not be true as some economists fear that it may well be the start of recession instead of stagnation. Here is the sequence that an economy would generally follow if it was on a downward trend:
Now, obviously the central banks and the government would take every measure possible to ensure that if/when an economy stagnates, it does not go further into recession. Depression is more of an extreme, considering there is no clear demarcation between when a recession turns into a depression, I think it is fair to say that if Recession holds on for a while (longer than initially expected), it can be classified as depression, however, others may not agree with that and present their own view.
Coming back to current economic state of UK & US. So as to give an idea of how bad things are and where they are headed, have a read of these figures.
FTSE at 25th Sept. 2007 = 6,397 points
FTSE at 25th Sept. 2008 = 5,096 points; a drop of 20% (1,301 points)
Oh & its expected to fall further!
The last time FTSE had such an enormous drop was in May 2002 (which itself was a continuous drop which started way back at the end of 2000 & continued well into 2003). It may not seem like a huge issue considering the 2001-2003 was only a few years back but this time, there are some real problems the economies are facing.
For one, this time, the God-aweful practices & downright greed of investment firms/banks is coming to light. On paper, Lehman Brothers, AIG, Fannie May & Freddie Mac were most profitable but when it came time to shed some light on the accounts, things were hardly rosy. The thing is that, it is the average joe blog who is taking the hit. As per Asda's estimates, average household is £11 worse off a week here in UK. Have a look at this graph at NYTimes, just click on the image and it will take you to their web-site.
Dont forget, when the economy takes a hit, the first demographic to take a hit is the middle class family, the poor are going to stay poor & yes, that includes being even worse off but the danger of lower middle class families falling into poor category is the real danger. All of a sudden, the poor segment becomes much larger as the millions of middle class families join the poor ones. However, amongst all this, the one sitting pretty are... you guessed it, the rich, the bankers, the people behind these banks.
Anyways, coming back to my topic, the second & more serious issue in my book, is the 'devaluation' of the currency from the inside. To put it in a nutshell, in the past, the US Federal Reserve (which is incidentally not government operated) whenever had a financial shortfall or needed money (like now), they would just go ahead and print it all out. As the gold standard was not operational anymore, the government did not have to worry about that side, all it had to do was keep the countries/people's confidence in dollar, which they did through various means...
This all went on for not just years but decades, when Japan rose, it was their money, then the Europeans and then the Arabs and Chinese. As it stands right now, it is well documented that Chinese are owed $500bn dollars in debt. That's $500,000,000,000,000!
On to my last issue, the US involvement in Iraq & Afghanistan. Personally, I do not buy this myself, anyone who thinks that Bush & Cheney went to war out for love and respect for world peace & prosperity is clearly not thinking about this in all seriousness. Apparently, US is losing billions on Iraq war but I am sure, if not more then most of it comes back in the form of taxes from all the US companies that have been awarded the contacts to operate & 'rebuild' the infrastructure.
So there you go, my two cents. I feel its important to mention, US is not evil, it is its leadership which has undermined the American public's trust & confidence to go about doing things which were not properly thought through.