I’ve not been spending time flying for couple of reasons. No time and no money! Every day is worse than the previous one. I think I won’t be flying for a long time now. In the meantime I thought to pen down my thoughts about the current crisis, and why I think this is just the beginning of ‘the end of the world’ we as know it! Or atleast it will be long (years) before things get back to normal.
First the current situation can be decomposed into two factors: economic and financial. What all the central bankers across are doing is to contain the financial crisis by injecting tones of liquidity in markets to thaw the MM / credit freeze. That is sacrificing tomorrow for today. I respect their predicament though. There is apparently nothing else that can be done or atleast done immediately.
After this first wave of mortgage crisis, the next wave will be of ABS (credit cards). With so many people furloughed, things are going to get uglier. This festive season is not going to get the same demand of goods as previous seasons. This will entail cut in production, reduced ancillary demand and more retrenchments (vicious cycle).
This is affecting all the industries across the board:
1) Credit lines are withdrawn. Industries have no cash flow to meet working capital requirements.
2) Low demand for goods due to lack of finance, and rising unemployment
3) Fall in commodity prices (infrastructure, petrochem etc…)
4) Furlough across the board… airlines, construction, financial services, IT & ITES, commodities ventures etc… more job loss than we ever imagined
The economic effect of all this intervention is tremendous. Think for a moment, where is all that money coming from. Initially I was against using peoples’ money to finance / fund all this. However, the scene got so bad that I had to either change my mind or lose my job. Let’s sit back and imagine for a moment that things (financial crisis) start improving. But the already fiscal deficit for countries like US and even India for that matter will be staggeringly high. This is going to be another big problem in itself that will unfold after all the waves from the tsunami are over. This will be the ensuing epidemic that will engulf the economy for much long.
The world that we will see tomorrow will be completely changed for better or worse. There will be lot of political impact too. Imagine, the days of free credit are gone. People will be unable to afford to buy home. The social and economic divide among the rich and poor will widen. There will be more people at the bottom of the pyramid. Lack of finance, insurance, social benefits will be affected. More people on roads than in homes. Get the picture.
Fiscal intervention will needed. But don’t ask how and when. The government will need to do something to reduce unemployment. What we are seeing now is just the tip of the iceberg. Lets hope someone will prevent Titanic II happening.
