Saturday, October 11, 2008

The world economy, history and more

Looking through the great depression in the stock market reminds me of the 2001-2002 days, when the web commerce bubble burst and a recession was on our hands. Are we looking at a recession, we'll from my point of view and many others we are already in it; in fact we are in a worse state. I usually don't talk about the economy, but this time I am very worried

1. Look at India's IIP numbers
2. There is a liquidity crunch (banks are not even lending to each other)
3. Unlike last time, we are in a state where need a huge financial bail out

My brother sent an interesting SMS, which read something like

If my bank returns my cheque quoting "Lack of Funds" as the reason. I won't know if the funds were lacking in my account or in the bank

I do believe in the principle that "Money is hardly ever destroyed", why do I say that?

  1. Wealth is usually created, as we find new resources, work harder, make new products or provide new services
  2. In general money passes hands and is never destroyed
  3. Wealth is sometimes destroyed, when we are hit by natural disasters that cause a loss in property, for example
Assuming that my principle holds, in the sub-prime crisis who made money? Where did the money change hands? Did the rich get richer and the poor get poorer? Did we boost our living standard to a higher standard than should have been?

In retrospective from the 2001 recession, web based commerce emerged back stronger and better. The technology, the pricing and the users matured (there were no more freebies for just signing up, BTW, I missed out on all of those :( ). What can expect to see as we come out of this recession? Will banks and insurance, investment companies be smarter? Will there be new regulations to make sure we don't hit such a crisis again?

Looking at the stock market, this is the third slump I've seen and been bitten by, the other two were

  1. Harshad Mehta's stock scam (I was very small/young then, but I understood what was going on)
  2. 2001 recession
History has taught me to be optimistic and know that we will come out of the bad times, the only thing to do is be patient, be positive and know that these things take a long time to recover, but they eventually do (or else we are doomed anyway, so what choice do I have, but to be optimistic :) ). Such times, test survival and like nature will choose the fittest to survive and learn from the mistakes of those who didn't survive the recession.

It is a cycle and we've hit the negative part of the cycle, the positives should be around somewhere, I hope we turn around quickly. Let's hope and pray that we quickly recover back from this situation and become stronger.
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