Global Economic Crisis

In formulating its dire assessment, The Economist based its conclusion on an analysis of past depressions. The Economist stated that the U.S. economy is manifesting the characteristics of a depression, taking into account the causes of the current economic crisis.

According to The Economist, the primary distinction between a recession and an economic depression is not linked to the decline in growth nor its duration, which are factors encountered in an economic recession. The magazine indicated that a depression is triggered by a bursting of the asset and credit bubble, a contraction in credit, and a decline in general price levels, all the indicators being experienced in the current Global Economic Crisis, especially in the United States.

The U.S GDP figures for the fourth quarter of 2008 declined by an estimated six- percent. Though less severe than during the Great Depression of the 1930s, The Economist maintains that the decline in American GDP is more closely aligned to an economic depression, given that it was facilitated by the bursting of the largest asset and credit bubbles in financial history. The findings by The Economist add substance to the growing consensus that the Global Economic Crisis will be a worldwide catastrophe of monumental proportions.

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What began as a financial crisis in the U.S. housing and mortgage market has metastasized as a virulent global economic cancer. The U.S. economy is imploding, and taking down much of the world with it. In a tsunami of financial panic, central banks across the globe have been slashing interest rates to virtual zero, while simultaneously borrowing and printing trillions of dollars, which are being injected into failing banking systems.

With global financial arteries clogged, the economies of the planet are now cratering, with the United States economy in particular imploding at an alarming rate. A concrete example of this is the impending bankruptcy of the American automobile industry, which directly and indirectly represents the core of what is left of the domestic manufacturing industry in the United States. Ford, Chrysler and especially GM have told the U.S. government and its elected representatives in no uncertain terms that unless the government injects untold tens of billions of dollars into their virtually empty coffers, those companies will go bankrupt in a matter of months. GM has even indicated it could be forced to shut down within weeks.

With a federal budget deficit that has grown from the hundreds of billions to the trillions of dollars, where is the U.S. Treasury going to get these vast funds for the industrial bailout requests that are now piling on? Perhaps soon the retail sector of the American economy will be coming to Capital Hill, hat in hand. However, an infinite series of bailouts is not a solution to the global economic crisis.

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As the American people feast on their Thanksgiving turkeys, there will be little to cheer about this holiday as the global economy in general, and the U.S. economy in particular, descend into the abyss. The latest economic data portents to a dismal future, with consumption spending plummeting, along with the continued and accelerating collapse of new homes sales to record lows amid falling consumer confidence. The unemployment rate is rising rapidly, one manifestation being the high initial claims for unemployment benefits. Simultaneously with all the other bad news, orders for durable goods such as cars, home appliances and factory equipment continues to fall through the floor.

Though the current economic news seems dismal enough, it is clear to many economists that the worst is yet to come. The global macro-economic data that will be forthcoming will define a staggering global economic recession that will defy policy prescriptions being enacted by panicky governments.

On January 20^th, 2009, Barack Obama will be inaugurated as the 44^th President of the United States. When Obama takes office, he will likely inherit from George W. Bush an enfeebled economy that is contracting at a rate in excess of 5%. The fourth quarter GDP data will certainly make dismal reading, as it will undoubtedly chronicle an economy that is in free-fall.

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