Tuesday Nov 25, 2008

The World Economy is a Turtle...

One would have to be pretty insulated to be oblivious to all the economic troubles throughout the world.   In the last 2 months I have visited Brazil, China and India and the economic impact in each country is amazing.  A year ago in India I was amazed at the Bombay stock index surge and the feverish pace in Beijing preparing for the Olympics.  Who would have thought back then that in one year things would be completely the opposite.  The credit crunch has hit consumer confidence throughout the world.  Banks are not lending.  Even private equity is hard to come by and the terms are not very attractive.  Consumer spending has decreased significantly.  Have you noticed the price of oil as of late?  Some countries that were surging on oil profits are now unable to sustain their economy which was built up over the past few years.  Selling out oil futures for the next 12-18 months is not something that is usually done.  There is plenty of energy data out there.  In India and China you can read about government actions to start infrastructure projects in hopes of jump starting their economy once again.  Stock market reaction seems to be driven less on fundamentals and more on the factor of fear.  Fear that nobody knows where is the bottom of the decline.  What is going to cause a turnaround of the confidence of people to start spending once again?  I read that approximately 70% of most economies are driven by consumers.  Another major factor is the credit market for access to cash for businesses.  It's also true that consumers in some countries are addicted to being highly leveraged so they need access to credit to spend again.  The formula for fixing this appears to be pretty simple:

Mend = Lend + Spend

However getting the lend and spend to occur has been one of the hardest problems throughout the world.  Confidence is easy when things are going well, but confidence in difficult times really is something that doesn't come easy.  Private equity and the venture capitalists naturally will get more inflexible during economic contractions.  New funding rounds for startups are probably going to require new lead investors.  Banks throughout the world are not willing to release capital just yet.  Businesses and consumers all feel the contraction.

The world needs to extend it's arms, legs, tail and neck and start slowly walking forward again.  Staying in its shell means no progress regardless of where you may reside.  It really is a world issue to be solved. 


About

The blog of Bob Porras - Vice President, Data, Availability, Scalability & HPC for Sun Microsystems, Inc.

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