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'Contraction will be over within two quarters'
STATE OF THE ECONOMY (A TURN-OF-THE-YEAR SERIES)
BS Reporter / New Delhi January 2, 2009, 0:10 IST

 Saumitra ChaudhuriAndrew Mellon. That’s the answer ratings agency ICRA’s economic advisor, Saumitra Chaudhuri, gives to those who compare the current US recession with the Great Depression. Mellon’s only formula, says Chaudhuri, was ‘Liquidate labour, liquidate stocks, liquidate the farmers and liquidate real estate.’

 
 
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As a result, there was precious little the US government really did and, when Roosevelt assumed presidency a few years into the Depression, no US bank was functioning — “compare this with now, when, because of the Fed’s aggressive action, no bank has downed shutters … where’s the comparison — it’s like comparing 9/11 with the World War!”

That done, Chaudhuri argues that the current contraction in the US should be over within the next two quarters — 2009 in the US, then, could end either flat or with marginal growth, and ditto for the EU and Japan. In terms of the numbers, his logic is simple — if you include the next two quarters, that’ll be six consecutive quarters of contraction, something that’s never happened before.

“Keep in mind that, by and large, US companies are in decent shape; the bond markets have begun to move and spreads between Aaa’s and Libor are falling; Libor itself is falling … essentially, credit markets have begun to move because of the huge funds infusion by the Fed.”

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CSJACOB
Very sensible analysis. The US is creative and inventive; have the best brains of the world at work to overcome the adversities, devoid of competitive politics. But recovery of the US economy does not necessarily mean the same to those countries dependent upon exports and services to the US. For, even if the US economy recovers in six months, it does not mean that they returned to the old lifestyle of profligacy, on which many developing countries depended.
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