The Bank of Canada cut the overnight lending rate by another 25 basis points on Oct 21. In his commentary the BoC Governor Mark Carney mentioned some very ominous things.
First, there is chance of global recession. Second, US is already in recession. Did you read correctly about US being in recession? I bet, you did! Third, he said that because of close trade ties between Canada and US, Canada will also be affected though it may just be able to avoid recession.
After reading Mr. Carney's remarks the thought that came to my mind was: Has Fed admitted that there was recession in US? I don't recall Fed Chairman Ben Bernanke having said that US had been taken over by the 'R' phenomenon.
May be Benrnanke is trying his best not to mention the 'R' word before Nov 4 US presidential election in order to avoid the massive embarrassment that will be caused to the Bush administration which in turn will hit McCain-Palin hard.
But Carney has nothing to fear, hence he could be more forthright in his assessment of US economy. Now the next question is, have we seen the worst yet? Or, there is more to come!
As far as Europe is concerned, no new bad news is emanating from there. Nor is any bad news coming out of Asia yet. That leaves US. It seems there is likelihood of some bad news emerging from US in coming weeks and months.
What does that bode for the world? Well, it is obvious that if the biggest consumer spending society, i.e. US, starts to clam up further it will mean less exports to US from Europe, China, and Canada. It will hurt Indian companies too to some extent.
The drop in consumer spending in US will trigger a vicious downward spiral in various economies which may eventually lead to global recession alluded to by BoC Governor. If not recession, there is certainly a danger of stagnation enveloping the globe.
So, to counter the possibility of looming global recession/stagnation the US needs to take some more bold steps. And, they have to act quickly. But if the Bush administration postpones those measures till the presidential election in order to prevent further potential damage to the Republican ticket, it might exacerbate the situation seriously.
Liquidity crunch situation has got to be tackled on war footing by US. The European countries have already been proactive in this regard and they are not fighting shy of taking any measures they think necessary.
Let us hope better sense will prevail and the US government and the Congress will act quickly to bring in next set of measures to deal with financial crisis that is threatening to devour the US economy and consequently cause a serious damage to global economic order.
The outgoing US President has 3 more months to show some leadership and effect some good to his country. But if he chickens out at this crucial stage, he will go down in the history as that Captain who chose to take the life raft and run away rather than try to save his ship from capsizing.
Texans are not known to chicken out. One hopes Dubyah will not allow the Texan image to be brought in to disrepute!
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