The Global Economy in Turbulent Times

CHAPTER 101 Getting “Cangkul-Ready”¹

Bear Stearns went belly-up in March 20, 2008, and by September, Merrill Lynch had collapsed (and was taken over), but Lehman Brothers was allowed to fail (eliminating three of the big five New York investment banks), while bankrupt Fannie Mae and Freddie Mac were nationalized. The crisis that exploded seemed like a fire troubling essentially Wall Street. But few realized that the US economy was already in recession (“a significant decline in economic activity” since December 2007, as determined by the US National Bureau of Economic Research).

It is remarkable that a 73-month economic expansion that started in November 2001 had ended in a whimper. Experts I am acquainted with now expect a long and deep downturn. Indeed, it could mark the first time US gross domestic product (GDP) will contract for four consecutive quarters since the third quarter of 2008. That puts the likely contraction at 18 months, the longest period of activity decline since the Great Depression. However, its intensity is harder to tell and compare at this time. Latest surveys don’t expect the United States to recover before the fourth quarter of 2009. The US Chapman Report last week suggested that the pain is likely to persist until 2010. It would appear that the worst is yet to come.

Financial Impact

The financial impact of this meltdown has been disastrous. Panic seized markets. Stock exchange prices have plummeted and credit markets are today still frozen. Worse, ...