The year for recession, markets are falling by two-figures and its only January 2008. After 3 weeks of experience in 2008 most people can clearly see the trend for the 11 month that remains. The climate on the markets is grounding a recession. People are more pessimists about the trend. An obvious and clear demarcation has been created to show that the world markets are entering a recession.
The causes of the trend
The financial institution have suffered heavy from the falling house price rate. The mortgage offered to private individual has affected the liquidity position of many banks. This has reduced the velocity of money flowing in the united markets. The reduction in the flow of capital has led to sever financial crises among business institution which have engaged in the phenomena.
The enlargement of the crises has automatically been rumble by the various economic solutions that have being inaugurated by the state. The reduction in the rates is one of the actions taken by the state. The remedy was meant to increase the circular flow of capital but initially the state had forgotten that the cause of the financial crises was caused by to many liabilities. A low interest rate does favour more loans which led to higher liabilities. The state failed to solve the problem and the problem is now even more difficult to solve.
In the recent days, millions of dollar has been the result of shrinking share prices around the world. The large companies are already announcing underestimated profits for the last quarter. This has depicted a reduction in the capacity to increase investment. The clear view is that the economy is entering a recession. The effect is at a world basis.
Further failures by the state, is an increase in government expenditure by 140 billions, which represent an injection. The injection was meant to boost economic growth and shift the aggregate demand of the nation to a higher level. This would eventually raise output and generate income and employment. However in a free-market the economy is operating on the basis of buyers and sellers. The actual injection will led to a raise in national debts. This will affect the country through out the recession.
Right course of action
The government should not intervene in the market, until the recession has shown sign of an end. In a free-market the business which is uncompetitive should be driven out of business and only the competitive should remain. The actual course of action should definitely bring the Wall Street down at minimum 25% this year.
The recent days, Europe and Asia have experience up to 6-9% fall in the general index during only one day. This has shown a switch in the trend which have been up going since some years.
The time have come for a recession, the only question is will the whole world follow America or will the rest of the world separate and experience higher growths. The Europe and Asian market should not be in stance to enter a recession with up to more than 15% for the year 2008.
The outlook for the near future is a slump and a distrustful financial market. The share will rise and fall by even more this will probably discourage the small investors over the short-term. The real winners will be the huge investor as usual. This is my prediction for the near future.
Learn more about this author, Jimmy Eriksson.
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