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Obama's dire warning - Views on News from Equitymaster
 
 
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  • Feb 10, 2009

    Obama's dire warning

    Failure to act will deepen this crisis, says Obama
    After considerable dilly dallying between the Democrats and the Republicans, the US Senate has arrived at a tentative stimulus package - of around US$ 800 bn - to safeguard their economy from going further downhill. This package would include tax cuts for individuals and business, aid to cash-strapped states and billions of dollars in new spending, jobless benefits, food aid for the poor, and road and bridge construction, among other things.

    In light of Obama's penchant for change, these compromises might haunt the US in the long term. But given the perilous state of the US economy and with Obama's hands tied, addressing immediate concerns will take precedence over long term reforms. This he made clear in his yesterday's press conference at the White House.

    He said, "The plan is not perfect. No plan is. I can't tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis."

    On the lack of accountability shown by government officials under the Bush regime, he said, "There have been a lot of bad habits built up here in Washington. All those were designed not simply to get some short-term votes, they were designed to build up trust over time."

    India and China are also facing the heat
    As reported on Bloomberg, India is projected to grow by 7.1% in FY09, as the global financial crisis and recession in the developed world takes its toll on the economy. Ever since India opened up its economy in 1991, the country has not been completely insulated from global shocks, though it has fared better than some of its Asian peers. This lower growth could not have come at a worse time for the current UPA government, with elections just round the corner.

    Bloomberg reports that India will need 10% growth each year for a 1% increase in employment. That seems like a tall order indeed. That said, while a 7% growth pales in comparison to the 9% growth rate that the Indian economy logged in the past couple of years, it is much better than the economies of the developed world which are down in the dumps.

    China is at the receiving end too. In India, while the current slowdown in its economy increases the possibility of UPA being ousted from power, China faces the prospect of social unrest as plunge in exports and the slowdown have led to 20 m migrant workers losing their jobs.

    Some hits and misses in the global corporate arena
    While a rise in job cuts is increasingly doing the rounds around the world, Japanese auto major Nissan intends to axe 20,000 workers, the most aggressive layoffs announced by a Japanese company as yet. In fact, the company joined the infamous ranks of its rivals Toyota, Mazda and Mitsubishi Motors in forecasting a loss for the current financial year which has been pegged at US$ 2.9 bn.

    In sharp contrast, Britain's third largest bank by assets, Barclays has reported profits of US$ 3.9 bn during the second half of 2008 (up 49%). This is creditable given that almost all banks globally are being mired by losses and the fact that the state of the UK economy is more perilous than the US. Of course, the bank was aided by the one-time gains resulting from the purchase of the assets of Lehman Brothers and the sale of an insurance unit. But in times like these, when declaring losses has been the order of the day, UK can breathe a sigh of relief, albeit for a brief period, that at least one of its banks is still capable of standing on its own feet.

     

     

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