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Written by Vladimir Popov
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Sunday, 09 November 2008 |
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When almost everybody was thinking that it is all over with the financial crisis and we are heading back to normal times it turned out that this had been just the beginning of the recession. All the rate cuts from the Federal Reserve, the Bank of England, or ECB did not help avoid the harsh consequences of the slump in the world financial markets. Last week we saw the Dow Jones Industrial Average climbing back up above the nine thousand line on the chart, but last two days we saw it going about 460 points down. Why was it going up and then down? Some good news about unexpected earnings from Exxon, some new contracts for Boeing, and the rate cut from the Fed drove investors expectations and eventually the index up, but after the elections the Dow plunged back down. This was due not to the choice of a new president, but to additional losses posted by the banks, retailers, News Corp, and the computer industry.
Employees are also affected. According to Yahoo and Bloomberg financial analysts, October will be at least the 11th consecutive month with higher job elimination than job creation. Also more than 500, 000 in the US have filed for unemployment benefits in the end of October, which is definitely not a good sign for the state of the economy. In Bulgaria I hear on the news the politicians saying that the recession will not hit the country, but at the same time half the industries are on strikes and the other half are not working. By their words the reporters on TV are implying that the decrease in oil prices is a good thing and chauffeurs should be happy, but these reporters do not even come close to the idea that one of the reasons for oil prices to be low is exactly because people are not driving their cars as much as before because of the lack of money. Another reason for oil prices being down is because producers have decreased their demand for oil since they are not producing as much. Why are not producers producing? Because people are not spending their money. Why are not people buying? Because they do not have the resources and even if the have them they choose to save now. As a result production goes down and since most of the industries in the economies are linked to each other they are jointly going for the plunge.
As usual out of all the losers emerges someone who manages to win something. In this case the winner is Wal-Mart. The retailer is one of the indicators for the state of the US economy. When people have money to buy expensive they do not shop as much in the cheap store, but now when the lack of money is palpable people are going for the cheap.
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