Recession or Depression

The start of the year see a furry of retrenchment activities. Even Microsoft such a profitable and cash rich company has to bow to the unthinkable, what other choices do lesser companies have? A look at the news doesn't really bring out much cheer.


Caterpillar cuts 5,000 more jobs as U.S. economists say recession will worsen
Home Depot cuts 7,000 jobs, telecom company Sprint Nextel axes 8,000
Philips axes 6,000 jobs worldwide after quarterly losses of %u20AC1.5 billion
Indian-owned Corus cuts 3,500 jobs, including 2,500 of 24,000 UK employees


The list continues, far too many even to list them down. Unemployment is not just an economical problem but a social one as well. Looks like this year we are going to get lots of troubles from both the social and economic fronts.

USA GDP was down a staggering 3.8% in the last quarter of 2008. It is the worse showing since 1982 but is well above the economists average estimate of 5.5%. But I must say do not bother about what those economists say. The average of a bunch of idiots is still an idiotic average. Their predictions is as accurate as you or me throwing a dice. What will be worrying is that is this a bottom or is this a start of the bottoming process? I would guess that it is still a start as Consumer Confidence Index was a record breaking 37.7 not seen since the index was started in 1967. Given that consumer accounts for 2/3 of the USA GDP, a loss of confidence in their part means less spending by consumers and hence the next quarter will even say far worse results as consumer confidence can be taken as more or less an accurate market sentiments and leading indicator. While the statistics show other leading indicators having some improvements, I really do not care about it. It was the result of massive fund injection and given such massive fund injection, those pathetic figures show that we have much more to fear. Recession or Depression? I still vote Recession but a deep deep one.

I guess the Obama administration just blew it. Let me explain, the mortgage market is a $14 trillion market in itself. What was proposed as a stimulus is just 5% and to be divided into so many other segments. What can this tiny drip do is to enhance confidence in consumers, not to solve the problems. But what the administration did was far too ambitious. It bounced back and what we see is a total loss of confidence as indicated in the 6 year lows for the Dow Jones and with more to come.

You want to bail out every industry that has a strong lobby, you need an infinite wallet, this isn't there. You need consumers' confidence, but CEOs' confidence, they can rot in hell for that matter. The Great Depression is popularly analysed as being caused by the credit crunch. This isn't true. What is the main issue is the loss of confidence. Banks earn money if they loan out, the more the merrier, the only way they refuse to do so will be because they are not confident enough to do so. Instead of addressing fundamental confidence issue, we see pumping of more and more money into banks. Whats the use? The banks will just keep the money instead of lending out? Credit crunch? Even if you give them infinite money, they won't start lending, not until some reasonable level of consumer confidence is restored. The economy of USA has matured far beyond 1930s. A Great Depression is not likely, A Small Depression is on the horizon.