Not to rock the boat
Sunday, 12 October 2008
Maswood Alam Khan from Cockeysville, Maryland, USA
THE news of the unprecedented 700 billion US Dollar bailout package in the making seems not working yet to allay fears of bankers to open their loan desks to their customers as usual. Or, maybe, the news of the gargantuan bailout package rather fueled more fear for bankers to be more conservative. Whatever is causing whatever, business confidence has depleted greatly around the world and it is certain that economies are fast losing steam!
"World Economic Outlook", published by IMF last Wednesday, warned that the world economy is heading for a major downturn in the face of the most dangerous shock to rich-countries' financial markets since 1930s. Maybe, this declaration of IMF may again spark another round of bankruptcies of banks and financial institutions out of a false fire alarm or on a rumour that those neighbours' houses are already on fire.
Based on the world economy's gradual downturn as a knock-on effect of the financial tremors being felt in USA and Europe, it seems global growth may soon come down to a very slow pace and may very soon send consumers all over the world cringing and shying away from spending their money---a dreary scenario that should send a chill down the spines of finance ministers and the central banks' governors all over the world. Except China---thanks to their robust foreign currency reserves and hedges coupled with natural resilience of the Chinese entrepreneurs and workers---all other developed countries are hard-pressed in restoring confidence and order in their economies.
Another disturbing feature is sharp fall in prices of commodities all over the world in quick succession which may sound good for you and me while shopping but that is an ominous and telltale signature that the world economy is sliding towards deflation and ultimately to stagflation which is far worse than inflation. The price of a barrel of crude oil which jumped to about US$ 150 a few months back is now selling at US$ 88. Toyota in USA has offered to buyers of their cars credit at zero per cent interest for 15 years. A fall in price in present situation means commodities are there in shops, but buyers are loath to spend money or money has lost its value.
To prod bankers to be liberal in giving credits and to influence borrowers to spend money as usual without getting panicky, central banks all over the world are cutting interest rates. On top of that US government is contemplating to do banking business itself -- a rarity in the US economic history -- by giving loans direct to borrowers bypassing the banks.
All these efforts of the governments and the central banks will undoubtedly thwart the financial cataclysm the world once had experienced in 1929 when the nightmarish depression made a bunch of paper currencies economical to burn as fuel in an oven to cook food instead of buying oil as fuel the same amount of paper currency could afford.
The fiscal stimuli and monetary policies being taken by the governments of the developed countries in North America and Europe may keep their economies buoyant and help their people make both ends meet for a year or two.
But, the major blow of the present economic turbulence will be punched on people of the developing countries like Bangladesh in Asia and Brazil in South America who eke out their living by depending on the spending strength of people of the developed world. Lesser spending by Americans and Europeans on accounts of garments and shrimps means large job cuts in Bangladesh and lesser spending of Americans on agricultural products like bananas means cruel financial deprivation of many poor Brazilians.
Periodic financial shocks are natural economic phenomena. Such shocks are our lessons for our future preparedness. Too much gossip and wide media coverage -- in most cases blended with spices and rumours -- exacerbates the economic stability by shattering public confidence in their respective markets. There is no point in shouting about it!
Like winter coming after summer, like flows coming after ebbs, recession or contraction comes after prosperity or recovery in a pattern what the economists term as business cycle that rotates on eight or 11 years' cycles. These cycles are made up of four stages, each linked to the variation in prices, production and interest rates. Economy is in expansion when there is increase in production and when prices are high and when interest rates are low.
Economy is in crisis when stock exchanges crack and when bankruptcies of several companies occur. Economy is in recession when both output and price decrease and when interest rates are high. And the economy is in recovery when stocks recover and when incomes rise and when prices fall.
Panic is the first symptom of economic depression. Panic makes people think irrationally and like an infectious disease, panic easily spreads to other people nearby and soon the entire group acts irrationally. Panic out of impending financial calamity may make people stop buying even basic necessities except those for physiological needs out of absurd fears and the whole financial structure based on economic machineries that are dependent on millions of factories producing thousands of products employing billions of people freezes and the recession inevitably looms up.
The whole world is now experiencing a precursor of a financial tsunami. Each and every country and each and every citizen of the world should watch the situation with equanimity and must not behave in a manner that may send fellow neighbours running in panic.
Take the Planet Earth as our small boat and we the people of the whole world need to work together. If one country or one person moves suddenly or unwisely the whole boat could rock dangerously and plunge us all into an abysmal depression.
The writer, now on a visit to the USA, is General Manager, Bangladesh Krishi Bank. He may be reached at e-mail:
maswood@hotmail.com
THE news of the unprecedented 700 billion US Dollar bailout package in the making seems not working yet to allay fears of bankers to open their loan desks to their customers as usual. Or, maybe, the news of the gargantuan bailout package rather fueled more fear for bankers to be more conservative. Whatever is causing whatever, business confidence has depleted greatly around the world and it is certain that economies are fast losing steam!
"World Economic Outlook", published by IMF last Wednesday, warned that the world economy is heading for a major downturn in the face of the most dangerous shock to rich-countries' financial markets since 1930s. Maybe, this declaration of IMF may again spark another round of bankruptcies of banks and financial institutions out of a false fire alarm or on a rumour that those neighbours' houses are already on fire.
Based on the world economy's gradual downturn as a knock-on effect of the financial tremors being felt in USA and Europe, it seems global growth may soon come down to a very slow pace and may very soon send consumers all over the world cringing and shying away from spending their money---a dreary scenario that should send a chill down the spines of finance ministers and the central banks' governors all over the world. Except China---thanks to their robust foreign currency reserves and hedges coupled with natural resilience of the Chinese entrepreneurs and workers---all other developed countries are hard-pressed in restoring confidence and order in their economies.
Another disturbing feature is sharp fall in prices of commodities all over the world in quick succession which may sound good for you and me while shopping but that is an ominous and telltale signature that the world economy is sliding towards deflation and ultimately to stagflation which is far worse than inflation. The price of a barrel of crude oil which jumped to about US$ 150 a few months back is now selling at US$ 88. Toyota in USA has offered to buyers of their cars credit at zero per cent interest for 15 years. A fall in price in present situation means commodities are there in shops, but buyers are loath to spend money or money has lost its value.
To prod bankers to be liberal in giving credits and to influence borrowers to spend money as usual without getting panicky, central banks all over the world are cutting interest rates. On top of that US government is contemplating to do banking business itself -- a rarity in the US economic history -- by giving loans direct to borrowers bypassing the banks.
All these efforts of the governments and the central banks will undoubtedly thwart the financial cataclysm the world once had experienced in 1929 when the nightmarish depression made a bunch of paper currencies economical to burn as fuel in an oven to cook food instead of buying oil as fuel the same amount of paper currency could afford.
The fiscal stimuli and monetary policies being taken by the governments of the developed countries in North America and Europe may keep their economies buoyant and help their people make both ends meet for a year or two.
But, the major blow of the present economic turbulence will be punched on people of the developing countries like Bangladesh in Asia and Brazil in South America who eke out their living by depending on the spending strength of people of the developed world. Lesser spending by Americans and Europeans on accounts of garments and shrimps means large job cuts in Bangladesh and lesser spending of Americans on agricultural products like bananas means cruel financial deprivation of many poor Brazilians.
Periodic financial shocks are natural economic phenomena. Such shocks are our lessons for our future preparedness. Too much gossip and wide media coverage -- in most cases blended with spices and rumours -- exacerbates the economic stability by shattering public confidence in their respective markets. There is no point in shouting about it!
Like winter coming after summer, like flows coming after ebbs, recession or contraction comes after prosperity or recovery in a pattern what the economists term as business cycle that rotates on eight or 11 years' cycles. These cycles are made up of four stages, each linked to the variation in prices, production and interest rates. Economy is in expansion when there is increase in production and when prices are high and when interest rates are low.
Economy is in crisis when stock exchanges crack and when bankruptcies of several companies occur. Economy is in recession when both output and price decrease and when interest rates are high. And the economy is in recovery when stocks recover and when incomes rise and when prices fall.
Panic is the first symptom of economic depression. Panic makes people think irrationally and like an infectious disease, panic easily spreads to other people nearby and soon the entire group acts irrationally. Panic out of impending financial calamity may make people stop buying even basic necessities except those for physiological needs out of absurd fears and the whole financial structure based on economic machineries that are dependent on millions of factories producing thousands of products employing billions of people freezes and the recession inevitably looms up.
The whole world is now experiencing a precursor of a financial tsunami. Each and every country and each and every citizen of the world should watch the situation with equanimity and must not behave in a manner that may send fellow neighbours running in panic.
Take the Planet Earth as our small boat and we the people of the whole world need to work together. If one country or one person moves suddenly or unwisely the whole boat could rock dangerously and plunge us all into an abysmal depression.
The writer, now on a visit to the USA, is General Manager, Bangladesh Krishi Bank. He may be reached at e-mail:
maswood@hotmail.com