Are we moving towards another recession? The global economic developments after Standard & Poor's (S&P) downgraded the U.S. credit rating, point towards the advent of a global economic meltdown. Leading rating agency S&P for the first-time downgraded its long-term sovereign credit rating on the U.S. from 'AAA' to 'AA+' and kept a negative outlook. The debt ceiling could not prevent the S&P downgrading. The historical downgrading also worsened the word economy which is already on the brink of a recession driven by the weakened U.S. financial recovery and the debt-ridden European economy.
While the debt crisis is likely to hit banking, manufacturing, real-estate and pharmaceutical sectors in the U.S., the crisis is said to cause only a minimal impact on India. It will presumably result in less capital flow to the Indian economy and our capital markets may face volatility head. Being the 14th-largest creditor to the U.S., India has exposure to close to $41 billion in U.S. treasury bonds. U.S. has an overall national debt of around $15 trillion of which the country owes $4.5 trillion to foreign countries holding government debt securities. However, the recession fears have gripped the world economy and here is a short peek into its impact across the globe.
While the debt crisis is likely to hit banking, manufacturing, real-estate and pharmaceutical sectors in the U.S., the crisis is said to cause only a minimal impact on India. It will presumably result in less capital flow to the Indian economy and our capital markets may face volatility head. Being the 14th-largest creditor to the U.S., India has exposure to close to $41 billion in U.S. treasury bonds. U.S. has an overall national debt of around $15 trillion of which the country owes $4.5 trillion to foreign countries holding government debt securities. However, the recession fears have gripped the world economy and here is a short peek into its impact across the globe.
Asia
Despite the assurance from S&P that the U.S. credit rating is unlikely to have any immediate impact on Asia-Pacific sovereign ratings; the Asian markets nose-dived on Monday. Likewise, amid repeated assurance from the Finance Minister Pranab Mukherjee that the U.S. credit downgrade will not hit India, the shares fell more than 3 percent on Monday trading, the lowest level in more than a year. South Korean stock market plunged more than 7 percent initially and later recovered partially to close down at 3.8 percent while Tokyo and Hong Kong lost more than 2 percent. China is the largest foreign holder of U.S. Treasuries which is about $1.2 trillion and this make the communist nation highly vulnerable to U.S. fiscal policy.
Europe
The massive increases in the public debt and budget deficits in European countries have brought them to the brink of a fiscal crisis. The debt-ridden countries are riding the world to a weakened economy and the European Central Bank's (ECB) pledge to calm down the financial markets has reportedly failed as most global stock markets sank again on Monday. Britain's FTSE 100 index of leading British shares slipped to 1.7 percent at 5,160 while France's CAC-40 fell 2 percent to 3,214. Germany's DAX was 2.3 percent lower at 6,096. Amidst the intense activities from ECB, Group of 20 and G-7 countries are increasingly engaged in constant discussions to prevent a second recession.
Middle East
The debt crisis in U.S. and downgrading of its debt rating by Standard & Poor's have shook the trading world in the Middle East. The first day of the trading week saw about stock markets slipping about four in Dubai and Egypt. The impact was worse in Israel where even delaying the opening of Tel Aviv Stock Exchange by 45 minutes could not avoid panic. The U.S. developments caused the Israeli stock markets to be plunged by seven percent. The Middle East economy is totally affected by the U.S. situation and the fear of the advent of a new recession is already giving jitters to the market. Israelis, severely affected by the skyrocketing price of housing, food and gasoline, took it to the stress in pretest which saw a quarter of a million Israelis demanding the government to lower taxes, subsidize housing and bring prices down. Saudi Arabian market plunged 5.5 percent when it opened on Saturday. Dubai experienced the steepest decline in the region tumbling more than 5 percent in early trading. Other Middle East markets including the Abu Dhabi and Qatar market indexes each slumped 2.5 percent.
Despite the assurance from S&P that the U.S. credit rating is unlikely to have any immediate impact on Asia-Pacific sovereign ratings; the Asian markets nose-dived on Monday. Likewise, amid repeated assurance from the Finance Minister Pranab Mukherjee that the U.S. credit downgrade will not hit India, the shares fell more than 3 percent on Monday trading, the lowest level in more than a year. South Korean stock market plunged more than 7 percent initially and later recovered partially to close down at 3.8 percent while Tokyo and Hong Kong lost more than 2 percent. China is the largest foreign holder of U.S. Treasuries which is about $1.2 trillion and this make the communist nation highly vulnerable to U.S. fiscal policy.
Europe
The massive increases in the public debt and budget deficits in European countries have brought them to the brink of a fiscal crisis. The debt-ridden countries are riding the world to a weakened economy and the European Central Bank's (ECB) pledge to calm down the financial markets has reportedly failed as most global stock markets sank again on Monday. Britain's FTSE 100 index of leading British shares slipped to 1.7 percent at 5,160 while France's CAC-40 fell 2 percent to 3,214. Germany's DAX was 2.3 percent lower at 6,096. Amidst the intense activities from ECB, Group of 20 and G-7 countries are increasingly engaged in constant discussions to prevent a second recession.
Middle East
The debt crisis in U.S. and downgrading of its debt rating by Standard & Poor's have shook the trading world in the Middle East. The first day of the trading week saw about stock markets slipping about four in Dubai and Egypt. The impact was worse in Israel where even delaying the opening of Tel Aviv Stock Exchange by 45 minutes could not avoid panic. The U.S. developments caused the Israeli stock markets to be plunged by seven percent. The Middle East economy is totally affected by the U.S. situation and the fear of the advent of a new recession is already giving jitters to the market. Israelis, severely affected by the skyrocketing price of housing, food and gasoline, took it to the stress in pretest which saw a quarter of a million Israelis demanding the government to lower taxes, subsidize housing and bring prices down. Saudi Arabian market plunged 5.5 percent when it opened on Saturday. Dubai experienced the steepest decline in the region tumbling more than 5 percent in early trading. Other Middle East markets including the Abu Dhabi and Qatar market indexes each slumped 2.5 percent.
Two years after the "official" end of the Great Recession, the U.S. Economy continues to struggle as many Americans believe the Recession has not ended. 55% think that the recession remains, while 29% believe it feels more like a depression! The recovery has been the weakest and the most lopsided of any since the 1930's.
In previous recessions, people in all income groups have benefited in the recovery; not so in this one. This time, the middle class Americans are still struggling with job security, too much debt and the absence of pay increases to keep up with inflation. The economy's gains are going to the wealthiest individuals. A large amount of the monies have gone to investors in the form of higher corporate profits.
Corporate profits are up by almost half since the recession ended in June 2009, where the typical CEO of a major company earned $9 million last year; up 25% from 2009. Driven by high profits, the Dow Jones industrial average has rallied 90% since bottoming at 6,547 in March, 2009. The stock market gains typically benefits the top 10% of the population.
Here are some disturbing facts:
In previous recessions, people in all income groups have benefited in the recovery; not so in this one. This time, the middle class Americans are still struggling with job security, too much debt and the absence of pay increases to keep up with inflation. The economy's gains are going to the wealthiest individuals. A large amount of the monies have gone to investors in the form of higher corporate profits.
Corporate profits are up by almost half since the recession ended in June 2009, where the typical CEO of a major company earned $9 million last year; up 25% from 2009. Driven by high profits, the Dow Jones industrial average has rallied 90% since bottoming at 6,547 in March, 2009. The stock market gains typically benefits the top 10% of the population.
Here are some disturbing facts:
- Unemployment has never been so high this long after the end of a recession since World War II.
- The average worker's hourly wages after accounting for inflation are 1.6% lower in May than a year ago.
- The jobs that are being created pay less than the ones that vanished in the recession.
- A record 18% of Americans are dependent on social programs with 45 millions people on food stamps.
- The average household debts equal 119 percent of annual after-tax income.
Americans are industrious and hopeful, yet it is going to take a long time for a solid recovery and a positive change in lifestyle, for many. My advice is to continue to learn new skills, limit expenses and gain more education/training to increase your value in the marketplace. Place pressure on your elected officials to help institute positive changes in government policies that will actually help the middle class, instead of just raise our taxes!
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