The Republican recession might cost $6 trillion!

This recession in the United States could plunge the entire world into a deep and painful depression. The primary responsibility for this must be attributed to the Republican administration that was too callous to really grasp the early warnings and take some concrete action. Now they are trying to pin it down to the gullible Democratic congress. Some of us could see this coming in November of 2004 but that serves no purpose. What is important is the correct analysis of the problem and then the political will to take sustained robust action. I am doubtful about either of above! Last night Charlie Rose had a discussion about the global economy with Paul Volcker, former Fed Chairman and one of the most respected figures on the economy. It was disappointing to see Paul Volcker so guarded about his remarks and he kept singing the same tune about the liquidity in the market and the recapitalization of the banks. Both actions have already been taken with little result.

Paul Volcker also reiterated that the fundamentals of the ‘US Economy’ are strong and that America is still the most innovative and productive economy in the world. He is absolutely wrong on both counts. The fundamentals of US economy are not strong. It has been a highly leveraged economy since 1980s and that is not a strong fundamental. The savings rate has been declining for the past three decades and is now in the negative territory. That is also a bad fundamental. The education level of the work-force has been declining but is being compensated by the first and second generation immigrants. This by no means has been a good fundamental either. Now let us talk about the innovation part of the economy. Look at countries like Brazil, Japan and South Korea; they are as innovative as the United States. It is true that there are a dozen companies like Google and Apple that are considered to be the most innovative in the world. But generally there are many more countries that have become highly innovative and influential around the world.