Get ready for Third Depression

Himanshu Shekhar

“We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense. This third depression will be primarily a failure of policy. And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again”, writes Paul Krugman in his recent column.

He is not alone who is sensing the third depression. A number of economist and those persons who understand the economy and policies are also of the same view. And the most important thing is, recent G-20 meet decisions also indicate towards this coming disaster. Recessions are common in an economy but depressions are rare. We have faced the recession of 2008-09. The coming depression will be third one after the depressions of 1873 and 1929-31.

Indeed, the bad economic signs are everywhere. Consumer are loosing there confidence and on the other hand big banks are hoarding cash across the globe. According to the annual report of The Bank of International Settlements, the major banks on both sides of the Atlantic Ocean continue to remain “highly leveraged and still appear to be on life support”. Everyone is trying to accumulate as much gold as possible. G-20 nations are worried about mounting debt and that’s why these countries pledged to cut government spending. Some Economists are saying that before the end of 2010, recession is likely to begin and this will head to depression and 2011-12 would be the year of extreme economic stress.

Mark Zandi, Chief economist of Moody’s Analytics, says, “There’s an uncomfortably high probability that we slip back into recession.” Kevin Giddis, the Managing Director of fixed income at Morgan Keegan says, “There is big money making big bets that at a minimum we we’ll have a recession if not a depression that could last for years.” An economist forecasted that a number of countries are set to face “Greek style” financial crisis. The fear of these economists seems real when we see the policy decisions. Federal Reserve Chairman Ben Bernanke has publicly admitted that the U.S. unemployment rate is quite likely to remain high for a while.

The large numbers of cities across the U.S. are set to face the financial crunch for their budget and this is going to make things more uncertain. It seems that Americans are aware of coming economic crisis. That’s why they are not investing their money in buying homes. The sales of new homes in U.S. dropped to the lowest level ever recorded. Some analyst are saying that the home prices will decline again with risk of another 50% down to get house prices back to levels of 1999-2000.

According to a recent poll, 76 percent Americans believe that the U.S. economy is still in a recession. Americans are not ready to buy the idea of all is well. Keeping the rising prices, mounting debts and so called reformist policy decisions in mind, it seems that all is not well with Indian economy too.

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