Are We Seeing A Repeat Of 1929?
Partially because of the rapid growth in telecommunications and Information Technology we have seen growth parameters including the GDP rising continuously during the 1990’s any beyond. While economic indicators are naturally cyclical, the recent sharp declines on the global scale have far exceeded the expectations of economic experts analysts. In Asia as well as Europe and the USA these declines have been the steepest since 1929.
The somewhat grim financial situation we now find ourselves in indicates a strong need to redefine existing economic and financial models. It is too early to tell when or whether financial rescue packages recently put in place will turn the economies of the USA, Europe and Asia around. Initially these bailout packages have done little to stop the slide in stock indexes.
The demise of larger financial institutions such as Lehman Brothers was not totally surprising to everyone. An analysis of Lehman Brothers business model, their policies, lending strategies and basic business practices would seem to make the eventual downfall of the company inevitable. It is strange that with an abundance of danger signals that the fall of the company was not predicted much sooner or at least in time to have done something constructive about it. Instead employees and shareholders were left holding a rather empty bag.
The question has to be asked as to what if anything financial institutions have learned from this experience. Will they accept the bailout packages and continue with business as usual or will they use this financial assistance to buy time enough to redefine and retool their business models? This would seem imperative if we are to experience solid and sustainable economic growth once again.
Ironically at the present juncture economies like China and US who always stand Back to Back have without joining their had are trying their level best to save their economy which in turn, though un-intentional is helping other countries to recover from the same.
Financial rescue packages will not necessarily help the investor in the short term except perhaps to put a brake on the losses. Assuming it will take some time for financlial institutions and other affected organizations to get their houses in order, the investor must review his or her own investment strategies in hopes of regaining a pattern of sustainable growth.
So it is really up to the political leaders of the affected countries to step up and cooperate in finding the means not only to reverse the current situation but to prevent a reoccurrence as well. Until that happens the small investor, and perhaps the large investor as well, needs to be very cautions as to where they are putting their money.
We may feel sometimes that a plunge in the stock market affects only the major stockholders, the “big boys”. It is not always apparent that a decline in the stock market means that companies issuing stock suddenly find themselves with insufficient capital to meet their goals. The results can mean decreased production, lower wages, and lost jobs. Eventually these negatives can and will affect the average citizen. As a part of any recovery package the average citizen needs to be educated as to what the big picture means to him or her.
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