Within 12 days the Dow has went up more than 1000 points and is now above 9000 again. A reason for this little summer rally could be the banks making gains again, and some signs predict that the economy brightens up again. It seems that the optimism is back. And that’s also my opinion, the enormous cyclical programs are doing their work.
But is this really the beginning of the end of the worst economic crisis after 1929? I don’t think so, because a second recession seems to appear in the year 2010.
But let me explain. The cause of the current crash was the collapse of the global growth model, which was handled by the industrialized countries for years. The model was based on consumption which was financed by credit. Huge current account deficits, a dept bubble and finally the world financial crisis were the results of this model. But the model also had positive affects, for years the Anglo-Saxon consumers had been the locomotive of the world economy. Everybody had a benefit from this model. Developing countries could produce huge amounts of goods and established new jobs for their people and the people of the industrialized countries lived a life in decadence and wastage. Suddenly artists like 50 Cent earned more than 400 Million USD at the stock markets and a company of a 23 year old guy was valued by 15 Billion USD.
But in my opinion this is over now and it won’t come back for a long time. Now the world has to pay the price for the excesses of the past. The governments of the industrialized countries can’t afford to pump more money into the system, solely the USA have accumulated a gross debt of 12.000.000.000.000 USD. However exactly here is the problem: the world needs a draft horse which gives strong impulses when the economy starts to recover in the year 2010, but the governments of the industrialized countries have to darn their budgetary holes by stopping their expenditures and higher taxes. Also the Federal Reserve can’t pump money into the system endlessly and BRIC counties like China or India are just not strong enough to play the role of the draft horse for the world.
Well, to assume the facts I agree with economists like Nouriell Roubini, Robert Shiller or Barry Eichengreen who also don’t believe that this crisis will be over that fast. Even if it seems like the current crisis has reached the bottom, which perhaps might be true. To achieve the growth we are used to, we will probably have to wait many, many years.