Recap 

In this week’s column I shall begin a review of Guyana’s economic performance during 2008, principally through evaluating the impact of three major shocks and economic challenges which rocked the economy during the first half of that year. As presented in last week’s column the shocks and economic challenges during 2008 differed greatly between the first and second half of the year. Indeed, in that column, I displayed a schedule listing the 14 most important economic challenges of 2008. Three of these occurred in the first half of the year. 

V, U, or L-shaped growth curve
Following last week’s column, I shall discuss this week the impact of the financial crisis and credit crunch on the prospects for economic growth performance in the United States, the broader global economy, and Caricom. I will start the discussion on Caricom in next week’s column.

Two issues need to be considered at this stage of the analysis of the financial crisis and credit crunch. First, to consider to what extent these financial occurrences have already negatively impacted the real economy. And, secondly, to evaluate the prospects for further damage, including spill-over effects to Caricom economies.

Overriding considerations
Except by pure chance, ultimately the effectiveness of the actions proposed by the G20 Summit held on November 15, 2008 would depend on the accuracy of its diagnosis of the present financial crisis and credit crunch that are engulfing the global community. In this regard, I would argue that, from the perspective of the developing countries, three over-riding considerations should guide the summit’s responses.

From the inception the US Treasury authorities have made it clear that the primary objective of the Troubled Assets Relief Program (TARP) is to stabilize the US financial system and free the flow of finance to business. As they see it the problem facing them is located in the accumulation of illiquid mortgage assets parked in the portfolios of the major banks. 

The United States is clearly at the epicentre of the global financial crisis and credit crunch. The scale of the havoc and damage already wreaked on the financial sector of the United States is one of the two clearest indicators of the awesome seriousness of what confronts the global economy today. The other indicator is the unprecedented magnitude and scope of the United States government’s response to this threatening situation. In previous columns I have discussed the first of these indicators. In this week’s column I start a discussion on the second indicator. 

In last week’s column I put forward the thesis that, the enormity of the global financial crisis and its associated credit cr-unch could be gauged from two indicators. Firstly from the carnage they have already wreaked on the United States’ financial system and secondly, the awesome scope of that government’s response. Without a doubt the United States is at the epicentre of the global meltdown. I have already considered the first of these indicators and in the process of doing this introduced two important financial precepts.

The enormity of the challenges posed by the present financial crisis and credit crunch is starkly revealed in its two most basic aspects, firstly, the enormous toll on the United States’ financial system and secondly, the unprecedented scope of the governmental responses, which have been provoked. 

The toll

As promised last week, in this week’s Sunday Stabroek column I shall start a fairly extended discussion of the staggering financial crisis and worsening credit crunch facing the global economy, The epicentre of these is the United States.