So, what's this big buzz about an American economic recession? The current
crisis of the world's biggest economy of course impacted the primary
elections. For months and months, the Iraq war was the main issue for the
voters. Now, it shifted to the state of the economy.
Most of us know that is something related to the house market and probably
the huge spending in Iraq. That's just the beginning.
For the past three weeks I've been following the markets. I used to always
pay attention to the numbers in the Dow and the Latin American, European and
Asian Markets. It was good if most of them were in green and if in red, the
number weren't too far from zero.
Then, during a typical nightly conversation with one of my friends, we were
commenting the state of the global economy and he mention how worried he was
for the imminent American recession and what that could mean for his
investments in Brazil.
Many "wows." First, it made me feel old. Someone my age, that I've known for
years, not an unknown foreign millionaire, had investments abroad. Second,
this big, abstract and distant concept of "Global Economy" had a known face,
my friend's and his little investment in Brazil.
During January there were two "black Mondays." While Wall Street was closed
because of the MLK holiday, the European and Latin American markets felt
around six points. If you are not familiar with the markets, that is very
unusual. The gains and lost don't really move more or less than two or three
points. After a brutal beginning on January 22nd the Down was able to finish
better, still losing but not so bad.
One of the main reasons for the re-float was the interest rate cut made by
the Federal Reserve. The interest rate went from 4.25 per cent to 3.5 per
cent. The biggest cut in 25 years. Later that month, on January 30th, after
their scheduled meeting the interest rate went down another half-point. That
same day the government gave the numbers of the economic growth of 2007,
only 2.2 per cent, the weakest in five year. The expectations for 2008
aren't encouraging either; the experts anticipate a weak 1.5 per cent. On
the other hand during the same year, China the fastest growing economy,
growth rate was 11.4 per cent.
Besides the slow economic growth and the budget deficit there are other
problems. The record-high oil prices and the low interest rates increase
inflation. That has a direct effect on the value of the dollar, which has
been falling horrible against the euro and the British pound.
Because of the inherent interdependent qualities of a global economy a
potential recession not only will affect the US but also could have a strong
impact on minor economies and even strong markets like the European union
and Japan.
The countries that depend on exports to the US would feel the effects
first, because their goods will become cheaper with a cheaper dollar and
because the US would have to cut down its imports.
Even if a recession hasn't started the fear of it makes the markets
volatiles around the world, complicating the situation even more.
Although things look pretty ugly it's still too early to panic. Some of the
developing nation's economies had been getting stronger and stronger and the
potential crisis could find them in a good shape. That way, hopefully, the
crisis wont spread too broad helping to get things back in normal.
Bush should sign the economic stimulus bill next week. It's supposed to "stimulate" the economy by making people shop. Even when I'm ready to receive $600 and maybe, finally, get a Mac, I'm know sure this is the best way to energize the economy. Of course, none of the presidential runners or the people on congress nor Bush want to be the mean person that denied the people some extra cash. Although some additional lunch money is never bad, it will definitely not fix the deeper and more complex problems that the country is going through.
crisis of the world's biggest economy of course impacted the primary
elections. For months and months, the Iraq war was the main issue for the
voters. Now, it shifted to the state of the economy.
Most of us know that is something related to the house market and probably
the huge spending in Iraq. That's just the beginning.
For the past three weeks I've been following the markets. I used to always
pay attention to the numbers in the Dow and the Latin American, European and
Asian Markets. It was good if most of them were in green and if in red, the
number weren't too far from zero.
Then, during a typical nightly conversation with one of my friends, we were
commenting the state of the global economy and he mention how worried he was
for the imminent American recession and what that could mean for his
investments in Brazil.
Many "wows." First, it made me feel old. Someone my age, that I've known for
years, not an unknown foreign millionaire, had investments abroad. Second,
this big, abstract and distant concept of "Global Economy" had a known face,
my friend's and his little investment in Brazil.
During January there were two "black Mondays." While Wall Street was closed
because of the MLK holiday, the European and Latin American markets felt
around six points. If you are not familiar with the markets, that is very
unusual. The gains and lost don't really move more or less than two or three
points. After a brutal beginning on January 22nd the Down was able to finish
better, still losing but not so bad.
One of the main reasons for the re-float was the interest rate cut made by
the Federal Reserve. The interest rate went from 4.25 per cent to 3.5 per
cent. The biggest cut in 25 years. Later that month, on January 30th, after
their scheduled meeting the interest rate went down another half-point. That
same day the government gave the numbers of the economic growth of 2007,
only 2.2 per cent, the weakest in five year. The expectations for 2008
aren't encouraging either; the experts anticipate a weak 1.5 per cent. On
the other hand during the same year, China the fastest growing economy,
growth rate was 11.4 per cent.
Besides the slow economic growth and the budget deficit there are other
problems. The record-high oil prices and the low interest rates increase
inflation. That has a direct effect on the value of the dollar, which has
been falling horrible against the euro and the British pound.
Because of the inherent interdependent qualities of a global economy a
potential recession not only will affect the US but also could have a strong
impact on minor economies and even strong markets like the European union
and Japan.
The countries that depend on exports to the US would feel the effects
first, because their goods will become cheaper with a cheaper dollar and
because the US would have to cut down its imports.
Even if a recession hasn't started the fear of it makes the markets
volatiles around the world, complicating the situation even more.
Although things look pretty ugly it's still too early to panic. Some of the
developing nation's economies had been getting stronger and stronger and the
potential crisis could find them in a good shape. That way, hopefully, the
crisis wont spread too broad helping to get things back in normal.
Bush should sign the economic stimulus bill next week. It's supposed to "stimulate" the economy by making people shop. Even when I'm ready to receive $600 and maybe, finally, get a Mac, I'm know sure this is the best way to energize the economy. Of course, none of the presidential runners or the people on congress nor Bush want to be the mean person that denied the people some extra cash. Although some additional lunch money is never bad, it will definitely not fix the deeper and more complex problems that the country is going through.
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