Recession seems to be imminent in the US. Its length & severity now need to be judged by policy makers so that they may attempt to minimise the damage

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Is it a ‘Recession or a Slowdown’ in the land of Uncle Sam? The debate rages on in earnest. Leave aside the fact that the National Bureau of Economic Research (NBER) defines recession as “a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income and wholesale-retail trade…” What matters the most is the fact that the US is suffering from one of the worst housing and financial crises in living memory. The ongoing crisis may not adhere to the definition as given by NBER; yet the outlook for US economic growth, employment figures et al has worsened in the last couple of months and the possibility of a recession cannot be ruled out. The financial market crisis, which erupted in August 2007, is worrying one and all.

The analogy drawn, however, has been debated by economists and analysts alike. Is the economy in a short-lived, cyclical recession or will there be a capitalist economic crash? As it is, the devastating 1929 stock market crash leading to the Great Depression of the 1930s silenced similar debates at that time.

The International Monetary Fund (IMF), though not very vocal of the present developments in the US (as it was during the East Asian Crisis), has said in its recently published World Economic Outlook, “The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression, inflicting heavy damage on markets and institutions at the core of the financial system.” It further estimates that the total losses for banks, hedge funds, pension funds, insurance companies and sovereign wealth funds arising out of the crisis will swell to $945 billion. Even the estimates have been a point of debate; some argue that it is pretty much an accurate estimate of the loan losses while others argue that the estimates do not in any way reflect possible decline in the quality of the loans that they hold.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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