the weekly economic comments

金瓶梅

It is not bad to have a cup of tea and to analyze about the recent financial situation while the whole town is closed on Sunday.



The recent market is quite controversial.  One banker is saying that the banks are back, another says that there is no sign of light, and one businessmen saying he can see green shots; and yet another says that the recession is deepening. Who is right and who is believable?



There are some arguments that stand for green shots:

The sentiment in the key housing market improved, with visitors and reservation rates. Indeed, when people believe the interest rate is so low and fear it could  rise soon.  How confident should we remain? When the banks are in shortage of money and therefore unwilling to lend, and under the current a higher credit Condition and increasing unemployment rate how many people are qualified and can afford  a second mortgage? With the prices still down how many will catch the falling knife?

We have stayed in a low inflation(CPI), and low interest rate, which signal the recession has bottomed.  I doubt a little bit about it, since CPI is including the house price. and actually RPI , which exclude the house price has been keeping rising for 6%-8%. So is this "low inflation" meaningful enough to indicate any direction?


Some figures recently released:

• The United States CLI showed no signs of a trough.
• The 16-nation single currency zone shrank by 2.5% in the first three months of the year compared with the previous quarter.
• Europe's biggest economy shrank by 3.8% on the quarter and by 6.9% on a year ago.
• France, the eurozone's second-biggest economy, contracted by 1.2% in the first quarter
• Italy, the next biggest economy, shrank by 2.4%.
• Industrial production in the 16 countries fell by a worse-than-expected 2% in March from February.
  

Let us summarize these figures in a obvious way. We are in recession without any doubt. The slowdown of this recession is negative and the pace of slowdown is dropping . That cooperates exactly what the government or banks always claimed “the worst may be over,” which means the worst of the slowdown may be over, but not the recession. There is definitely a long way and more pain, with slight of flowers of confidence or indicator alongside.



These figures are worse than any others period after World War Two. The most likely analogy would be The Great Depression of the1930s.There are stunning similarities, which can fill more than a few  pages.  For instance, lower interest rate, enormous debts, and as the crisis breaks out, banks failed, the unemployment rise, and after 1 year the worst seems to ease, it is quite like our current situation



And something have to mentioned,  as we have seen, the Obama administration expressed last Friday, that China might not buy the US bonds anymore, which corresponds the  misgiving of the Chinese authorities several months ago. If China and Japan are not interested in the US bonds anymore, who will be the next buyer?  In order to avoid the embarrassment, the Obama administration has replied this issue to American banks.

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