Recession, US default and the Capitol

The ensuing six months are very critical for the world economy as it moves through a tight rope with a short pole for balance and heavy winds lashing against it.

There are conflicting views regarding the state of global economy: many argue that the world is on a recovery path. Others would say that the crisis is far from over and the current growth is just a dream before a nightmare.

The truth is that it is still possible for the world to make the outcome the way it wishes: dream or nightmare.

It would be a beautiful dream provided a concerted effort is on from the part of world leaders putting to rest the petty political diatribes and narrow alley-mentality. It would be a nightmare if the opposite works out.

Take it from me: if the world goes to recession once again, it would not be purely for the (complex) economic reasons, but for the (petty) political ones as well.

Take the case of debt-ceiling debate in US

Nobody loves a bad debt. Not even US.

Debt is more a question of trust than a question of performance. It is more of an impression, an assurance signed and extended into the future that would help the lender sleep in peace. Please note that this applies only to the planet’s biggest economy: the USA. If you are USA, you can pay your debt. If you are not USA, then better be China or India; you may have some reprieve.

Go down the ranks and chances are less that you would survive on debt; debt alone.

Now what if the USA defaults?

That is unthinkable....

Sorry, a storm is gathering. If the planet’s dignified-glorified democracy goes nuts in its Capitol, a recession can happen. If it does not...Obama warning about a recession could have a Nostradamus effect. It can become true.

This is the moment: If the Republicans behave with some magnanimity and would raise the debt ceiling, a major global catastrophe can be averted. In return the world expects the wizard of the white house to tighten his belt and for that matter the belt of obese consumerist credit driven consumption maniacs in US, and help them start saving.

Meanwhile Bernanke can start raising the interest rates. He should also tell us what it would be like after the expiry of QE2. The world does not want a QE3; but it doesn’t want the commodity market, or for that matter, the equity markets to come down.

Aside: The world does not want the interest rates in the growth markets to rise as well.

As published in: http://www.commodityonline.com/news/Recession-US-default-and-the-Capitol-39067-3-1.html