Financial crisis as on 13th Nov. 2008

In all probability, the crisis will lead some developed countries(already Germany is one) to a recession. The picture is, slowly but surely, getting murkier.

Corporate India's September quarter results have been poor. They have reduced their revenue forecasts for the next couple of quarters. There are red flags all over after Intel announced revenue forecast cuts in the past couple of days. And more is expected in this direction. But huge layoffs have still not been planned. Touch wood!! This is apart from the effects of the US treasury's U-turn on swallowing bad assets.

So stock indices could go down further. Sensex might breach 8k and stay at those levels briefly. So I guess there's still time for bottom-fishing.

Ok, now to the solutions!!

Since the fallout of the crisis last month, many solutions have been doing the rounds. Some of these have already been tried - interest cuts, providing loans to banks, etc. Just to be sure, many economists never seriously expected these to stop the freefall. But there were some other solutions which, proponent economists argued, had to be the way. And these were interesting solutions.

They argued for direct manouveres - invest directly in the economy. These measures will result in putting more money in the hands of the people, the consumer. That in turn will lead to increased spending that could possibly revitalise the economy.
How is this achieved? Through increased spending by the governments.
In what ways? Building local infrastructure, capacity building in PSUs(mainly manufacturing industries), etc.

This solution has got a taker in the form of a 'dragon'.
Last week, China announced that it will be investing almost 600 billion dollars over the next two years to soften, if not negate, the effects of the slowdown. With its stupendous record at implementing policy decisions, the move will certainly bear fruit.

What can this do to the global economy?
First of all, it's a move that will catch the attention of the world. And then many countries could follow, although the results for individual countries will vary. If more countries follow this, there is a very good chance that the slowdown will be short lived. It will be difficult, though, to extricate some developed economies from this quagmire. But India and many other countries will benefit with similar measures.

So even as times get difficult for some countries, for some like ours, it may not be as bad as we are now fearing it to be. But then we will have to wait and see how things play out.

To sum up, tougher times lie ahead for all of us.
But developing economies could recover faster.