The outlook for the world economy is indeed very grim and bleak judging from the performance and prospect of the world’s largest economy, the US. There has recently been more terrible news from this battered economy. First U.S. bankruptcy filings surged 31 percent in 2008 as both businesses and consumers struggled to make ends meet in a worsening economy, according to the recent US court data.
Total bankruptcy filings rose to 1,117,771 last year, the Administrative Office of U.S. Courts reported, up from 850,912 in 2007. The total is nearly twice the 617,660 filings recorded in 2006, when an overhaul in bankruptcy laws led to a drop in filings.
Businesses accounted for 43,546 filings last year, a small percentage of the total, but up 54 percent from 2007. The number of filings rose steadily throughout 2008 as the economy worsened, according to figures released by the agency, which oversees federal courts.
Escalating job losses, weakening consumer confidence and declining home values have pushed companies and individuals alike into bankruptcy, and experts say the total is likely to continue to rise this year.
The total could surge further if US Congress changes laws that would permit residential home mortgages to be modified under Chapter 13 of the bankruptcy code, which allows people to budget future earnings under a plan in which creditors are paid in whole or in part.
The U.S. House of Representatives is expected to approve a bill that would let judges erase mortgage debt for homeowners who enter bankruptcy as a last resort.
Second, for the first time, the price of a Citigroup stock on Thursday fell below $1 in a sign that investors are losing confidence that the lender, which operates in more than 100 countries, can be restored to health after $37.5 billion of losses in the 15 months ended December 31. What can one dollar get you these days? Well let’s see, a cup of coffee, a pack of chewing gum, and now a share of Citigroup.
Shares recently fell as low as 97 cents, leaving the bank with a market value below $6 billion -- down from more than $277 billion in late 2006. The decline came even though Citigroup has gotten $45 billion of taxpayer-funded capital since October, and despite federal efforts to stimulate the economy and lending. However, Citigroup still remains part of the Dow Jones industrial average.
Third, according to the famous Harvard Professor Robert Barro who gave interview with CNBC, there's a 30% chance that the current recession will snowball into an economic decline of 10% or more --the hallmark of depression.
One can look at the glass as half empty or half full. If you're an optimist you can say those numbers suggest a far larger chance of avoiding depression, than falling into one.
In fact, if you look at history the US has avoided depression several times despite pretty severe market crashes. The market crashed in 2000-02 and also in 1973-74, and in each case the US experienced only mild recessions.
Hence if we are lucky the current downturn will also be moderate. If that is indeed, how it plays out — as a moderate recession — then Professor Barro expects the economy to recover in 2010, which is incidentally what US Federal Reserve Chairman Ben Bernanke recently forecast.
However if we slip into depression, Barro thinks it lasts 4 years. That would make our recovery in 2012. What’s the bottom line? Let’s hope history does repeat itself and the market patterns of 2000-02 play themselves out, once again.
BY Chodechai Suwanaporn
Source: Fiscal Policy Office / www.fpo.go.th