The chatter about the economy going into recession started sometime after the end of democratic primaries. “If the economic situation worsens, McCain would be in a weaker spot as compared to Obama.” “Are we really in a recession? Oh I just said the R word.” Such were the comments one would get to hear all the time on the media. What started off as real estate crisis comprising of sub-prime lending and leading to foreclosures, soon engulfed the biggest American banks who held the troubled assets. Auto companies, tech sector and retail could not escape the fangs of the economic wrath and soon got caught in the downward spiral that continues to date.
Credit is the bloodstream of any economy. Banks float credit in the economy just like heart pumps blood through the nervous system. With the heart attack that the banks suffered in the form of troubled assets, a ripple affect was bound to occur. If your arm stops functioning and is in a lot of pain, a surgeon can cut and throw it away, and replace it with an artificial limb. But if it is your heart that stops functioning, it requires a costly heart transplant operation involving lot of blood transfusion. The outgoing Bush administration and the new Obama administration, both conducted heart transplants on the economy by releasing bail out and recovery packages of atrocious amounts unheard of in world’s economic history. While the public spending (part of the American Recovery Program) may have generated (or I hear the funds won’t become available for deployment until 2010) some demand and jobs in certain areas, the overall demand for goods and spend by business continued to spiral downwards.
The Economic Storm
These are rough weathers for all the floating vessels (corporations) in the sea of economy. A storm has hit and already drowned many of the small and midsize boats. Even the bigger ships have decided to remain still (reduce spending) by throwing out an anchor (cutting budgets), instead of burning up the left over fuel (cash in hand). As water level rises (decreasing gap between cost and revenue), the captains of these ships (executive management) have decided to throw the passengers in the lower decks (low performing employees or employees in low profit product teams) off into the sea. Of course, if the ship is big it has some lifeboats (severence packages) on which the passengers are let off. The smaller ships have simply pushed them off to be on their own in the cold sea.
Well said!
Thanks Sonia!