Economics is not a science. It is not like chemistry where a particular enzyme always has a specific effect. In economics you are dealing with people and people are not predictable like enzymes. So we have a global crisis that hasn’t really yet affected people to the magnitude that some experts expected; were they wrong?
Economics is not a science. It is not like chemistry where a particular enzyme always has a specific effect. In economics you are dealing with people and people are not predictable like enzymes. So we have a global crisis that hasn’t really yet affected people to the magnitude that some experts expected; were they wrong?
No they were not, the banking crisis was real and the majority of western banks were exposed to risky debt both directly and indirectly. But comparing it to the Great Depression was false. The two crises were different in many ways; the 1929 crash that precipitated the Great Depression was a stock market crisis but this was primarily a banking crisis.
The crisis was averted by a Eureka moment "why don’t we jut wipe off the debt and pretend it doesn’t exist, then we’ll print more treasury bonds to sell to the Chinese to cover the deficit.”
It was the height of collective stupidity but the world was not ready to bite the bitter pill and put off the sour medicine for another day.
A recession is more than two quarters of negative growth; the globalisation of the world and the speeding up of trade have meant that the economic cycle is rapid, so we have some companies showing profits already despite the negative outlook.
In measuring magnitude were have different ways of measuring crises; like a blip, correction, a boom, a bust, a downturn, with a depression being the worst of all meaning 10% shrinkage and a sustained period of stagnation. In this regard this crisis was serious simply because of the numbers involved; the US treasury gave nearly $1 trillion.
The third aspect of this is global dynamics; America is spending and racking up debt but China is saving and quietly bankrolling this American spending.
China could find itself in a situation where all their treasury bonds are worthless, so it have to invest this money back to shore up their reserves. Goldman Sachs – the definitive investment bank posted a profit of $30 billion but they apparently sold a 10% stake to China. The relationship between US and China in terms of trade needs a redefinition; the trade surplus will harm China in the long run.
All the statistics in the world mean nothing to the ordinary man/woman on the street; they just notice their particular circumstances. In Rwanda, the professional class has seen little change apart from an air of caution where spending is concerned; their skills are still in high demand so their salaries are experiencing a net gain but this increase is offset by the high cost of living.
In Kigali, if you want to live a western lifestyle then you pay as much as you would in Manhattan. I have decided to start an urban garden in a suburb just to have a continuous supply of my favourite foods – for free! Cost-cutting should be a lifestyle; it is easier to cut your spending by 20% than to get your boss to even give you a 3% raise let alone 20%. As for this crisis; it is nothing Africans cannot deal with.