When I wrote about the financial crisis last October 6th, I made some predictions about how the situation would unfold.
Sadly many of those predictions have already come true.
1. Credit will dry up forcing banks and then companies into liquidation as consumers stop spending.
2. Unemployment will rise fast as companies slow production and fire staff.
3. Economies based on exports of raw materials will suffer particularly as the prices of these fall.
This third prediction is one I am quite proud of as no-one much forsaw oil and food prices falling so fast, leading to economies like Russia, Argentina, and the arab oil economies to slash spending.
What now ?
Every cloud has a silver lining.
A) third world and developing economies are going to benefit from rapidly falling import costs- fuel, food and western technologies will all cost much less. Africa may enter a period of faster growth.
B) inflation is falling fast leading to a cut in interest rates, making it less expensive to finance loans, mortgages, investments.
C) useless and technologically obsolete industries will die. It’s goodbye to GM, Chrysler and Ford as we know them. It may even be the beginning of the end for IBM, MS and god forbid Google, Yahoo etc., as newer, leaner companies enter their markets and with lower costs take away their business.
D) the very rich just got poorer. That’s no bad thing. It closes the gap a little and ridimensions their arrogance. It opens international fora to developing countries like Brazil, India, southern Asia, which have their financial houses in order and can now raise a stronger voice in fora like the IMF, WB, WTO.
E) the future of the liberalised, globalised, free economy is history.
Politics is back in place as the just governor of international trade rules and financial market rules.
I haven’t yet mentioned the effect of a new US President. Personally I am not as optimistic as some. He is as much servant as leader given the powers which elect a President; for sure the outcome gave us the best result but let us not be euphoric until we start to see him in action. COP 15 will be one of those occasions.
We have, as I said in October, two harsh years ahead and the data coming out show this to be probable. But as prices in shares, housing, property, commodities fall, so will the capacity of more people to buy them increase. A point will come within 2009 when we hit bottom. The rebound in 2010 could be very fast indeed.
Hold on for a bumpy ride !