World Economy: The Beginning of a Depression? Not Quite

By: CaraTan   Date: 28 November 2008

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CaraTan

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Cara Tan, editor

 

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Singapore, 28 Nov. It’s funny that in the midst of a financial crisis while politicians try to calm the masses and restore confidence they also make apocalyptic statements about the economy. To a largely-uninformed public, what any government leaders say is taken as the gospel with no reflection on current facts, indicators, or history.

President George Bush’s 24 September speech warned that, “America could slip into a financial panic and a distressing scenario would unfold,” and, “Our country could experience a long and painful recession."

While it is right for any government to be forthcoming and straightforward with its citizens, the effect can be detrimental as many adopt knee-jerk reactions and cease all spending, further perpetuating the crisis.

The irony is that in order to restore consumer confidence through a bailout bill, the government must set the tone for the very severity of the situation, which inevitably initiates this kind of self-fulfilling prophecy. Even with consumers and investors shaking in their boots, it was a real struggle to get any bill this large through Congress. In other words, the government was stuck between a rock and a hard place: Play up the severity of the crisis to get the bill through, or announce it more subtly and gently to prevent panic, but not garner the support to pass the package.

And people are worried. Companies are taking pre-emptive measures by cutting budgets, workforces, and advertising. Sales in full-cost luxury markets are sinking.

Bruce Watson, of Bloggingstocks.com, wrote, “In this context, it looks like the next year will be tough for manufacturers and importers of high-end luxury items. After all, if the people who can actually pay top dollar are cutting back, what will happen to the people for whom luxuries are a splurge?”

An article on MarketPlace.co.uk warns that, “We are in for a protracted period of economic depression – a depression much worse than the Great Depression, a depression that would likely be remembered in history as ‘The Second Great Depression’ or ‘The Greater Depression.’”

A CNN Money


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