Will We Be Dragged Along

Source : TODAY, Tuesday, February 12, 2008

US economy headed for downhill ride

WHEN I was just a boy, my mother told me: 'Son, you will never know hard times if you don't live through them. I hope you never have to.'

WHEN I was just a boy, my mother told me: 'Son, you will never know hard times if you don't live through them. I hope you never have to.'

She told me about her life on the farm during the great US depression in the 1930s.

Mum was only 10 but she remembered my grandfather going out for breakfast each morning.

Where did he dine?

He went to the chicken coup and took one egg from beneath a chicken. He would crack it open, tilt back his head, drop the egg in his mouth and swallow it. That was breakfast.

Why not cook the egg?

Mum told me that he wanted to save a few cents by not using cooking oil and gas.

At the depths of the depression in 1933, the unemployment hit 25 per cent.

Could things get that bad again?


10 GOOD YEARS

Well, the US enjoyed 10 years of prosperity without a downturn by the end of the 1990s.

So, economists were feeling rather cocky and declared depressions were under control.

Now, their finely-tuned monetary and fiscal policies would also prevent recessions.

Then in 2000, the dotcom bubble burst and reality set it. From March 2000 to October 2002, the high-tech US Nasdaq stock index dropped a whopping 78 per cent.

By 2001, America's problems had spread to a worldwide recession. Singapore was hit too.

Now, in 2008, the US economy is floundering again. The odds of a US recession increase weekly.

Will we be hit? Probably.

Not only do we depend on US sales, our export partners do too. We take a double whammy when US demand declines. That makes a US recession a concern to us.

Incredibly, it was only four months ago that the Straits Times Index hit its all-time high of 3,876. Today, it is 25 per cent lower.

Much has changed. The US engine that drives the world's economies is sputtering. Possibilities for repair are uncertain since this downturn is unique.

For one thing, bank credit has dried up for all but the most credit-worthy borrowers. If a project smells risky, it won't get a loan.

For sure, the new air of caution will slow spending, but by how much? A depression is a long shot. Next week, I will tell you how it could happen.

In the meantime, be afraid. Not very afraid. But be afraid.


US RECESSION

1958
1960
None
1970
1974
1980
1982
None
1990
None
2001

S'PORE RECESSION

None
None
1964
None
None
None
None
1985
None
1998
2001

Sources: Singapore Department of Statistics and National Bureau of Economic Research (US).


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TALK LIKE AN ECONOMIST

LEARN these terms and you'll be on your way to becoming an economist. It is a fun and easy profession.

Recession: Six months of no growth in the economy.

Depression: Worse than a recession. No one has ever defined it precisely.

Monetary policy: Lowering interest rates.

Fiscal policy: Government spending and tax cuts.

Unemployment rate: Number of people 15 years old and above who are not employed but are looking for a job divided by the number of unemployed plus employed people.

Asian financial crisis: The sudden decline in Asian currencies and economies, triggered by Thailand devaluing its baht on 2 July 1997. It had no choice as it lacked the foreign currency reserves to defend the baht from speculative selling.

Foreign currency reserves: A central bank's holdings mostly of US dollars but also euros, yen and gold.

It guarantees the strength and stability of a currency.