Quite disturbing signals on economic front

The 'capitalism' has gone sour. The collapse of 158-year old bank, 'Lehman Brothers' on September 15, 2008 raised an alarm bell. This was the largest bank closure in the history of the USA. More banks and credit unions in the USA followed the suit, triggering the global financial crisis. In order to tackle the situation, the US government implemented the bail-out plan. Later, it embraced the quantitative easing (QE) policy. Under this quantitative easing policy, the central banks including the Federal Reserve has been printing money and buying bonds (largely government bonds) from banks. The purpose of this is to facilitate the flow of a large amount of cash into the hands of banks for their ultimate lending out to individuals and corporations to help boost spending. The first round of QE during the financial crisis was, in effect, a way to give indirect bail-outs to the US banking system. But very little of that money flowed into the real economy. In the UK, the Bank of England printed £200 billion, most of which was held by banks against their potential loss. The second round of QE has been a lot more controversial. The US announced then that it would print $600 billion, most of which, as it expected, will flow out to the emerging Asian economies. In that event, the property and stock markets in such countries would be further heated up, forcing them to hike their interest rates to help curb inflation and to deal with the bubble. The 'hidden' purpose here, as noted by some analysts, has been to see further strengthening of the currencies of the emerging Asian economics, with the aim of making US goods more competitive in the world market. It has been renamed a 'currency war' by proxy, by some countries. On their part, emerging economies have performed better than the developed ones during the period of recent global financial turmoil because of their higher rates of profit. Even, a smaller economy like that of Bangladesh saw its export earnings growing steadily. But strengthening of some Asian currencies have tended to effect adversely the export competitiveness of their economies, in the subsequent course of events. Only China has the ammunition to keep its currency artificially low but it too has been found by the circumstances to raise its interest rates to curb inflation and to deal with the problem of assets bubbles. The QE by the USA is likely to put further pressure on the developing economies this year. There is a possibility of an asset bubble collapse, particularly of the 'stock market' and 'real estate market'. There is also the threat of an economic slowdown as the developed economies are running out of steam. Meanwhile, the situation in Bangladesh under this emerging situation in the wider Asian region and elsewhere, has some unique features of its own. These are the causes of more worries about the course of its future economic performance. The growth of the stock market in Bangladesh does particularly merit attention here. This is more so, because this growth has not been commensurate with the performance of its industrial sector or the real economy. Severe gas and power supply problems give a stagnant picture about industrial growth in Bangladesh. The pace of new investment activities has also slowed down. In this situation, the people from all walks of life have become investors in the stock market. In the not-too-distant-a past when the market was abnormally overheated, the works in both public and private offices did suffer to a considerable extent as more and more employees there were then found to be too busy discussing the market or loitering around the stock exchanges without caring for doing the normal works in their respective offices. The computers, meant for their office-work, remained then mostly busy for making some private and personal gains from transactions in the share market. The unexpected growth of the stock market due to involvement of many people, belonging to a wide array of professions -- and also being in a mismatch with the performance of the real sectors of the economy, particularly the industrial one -- created a huge bubble there. This also has subsequently led the 'real estate bubble'. And now the capital market is in troubles, despite a number of the so-called boil-out moves that have been announced, with direct or indirect support of the government. The overheated property market is yet to steam off. Meanwhile, food prices have been rising in the country, in tandem with those in other parts of the world. The authorities concerned do need to take an objective view of all such developments and to adopt appropriate corrective measures to help avert any major crisis that may affect seriously the lives and living of the teeming millions. The writer, a PhD, is senior vice president of Islami Bank, and can be reached at e-mail: mahmood_ibtra@yahoo.com