Global Recession : Are We Becoming Wiser?

Recession, business cycle, bubble are not new for this world. Right from 1930's onwards, there is an ample record of economy movements & major recessions, their causes & impacts. Have we learnt any lesson from each of the down turn or just become good at analysing it post facto? With so much of experience, knowledge, sophisticate modeling capability or merely improved common sense, why can't we see it coming? Why do realize it when we are only deep into it?

These questions are difficult to answer and many experts may claim that they saw it coming but as a collective human race, we have been again fooled by our psyche. Just a few months back the whole world was dancing to the tune of growth. Oil & commodity prices crossed the limits of any imagination but the greed of producers continued to grow without any limit. They kept on increasing prices to make a hay while sun shines. Same was the story for the real estate sector fueled by strong consumer demand that soon turned into a bubble with entry of investors colluding with builders. The sensex, having crossed 10000 mark did not look back, with every increase sharper & faster than before till it touched 20000 mark. Experts even forecasted sensex crossing mark of 30000 in near future.The stock market sharp rise was nothing but another bubble being built by FIIs pouring dollars into a stock market. Rupee sharply rose against dollar & analysts forecasting further strengthening of rupee.

While the experts were building castles in the air, the US economy was getting into troubled waters right from beginning of 2008. Japan was already on the edge of recession. There was increasing unemployment in US resulting in lower consumer demand. In the middle 0f 2008, alarms were raised on sub-prime concerns with many banks declaring losses. Experts failed to read the signal & assess the impact. This was another bubble waiting to burst. The experts strongly believed in it's not over until the fat lady sings.The sharp increase in food prices was attributed to food shortage due to increased consumption in India & China..... another cover story to ignore the reality.

The story of India is very peculiar. The economy was growing at 8-9% and expected to touch double digit oblivious to what was happening to commodity prices until inflation started hitting both the industry as well as common man. When crude oil prices crossed USD 100, government had no option but to increase fuel prices. Prices of common items, food and vegetables went up 30-40%. The government that was gung-ho about growth had to resort to practices of reducing liquidity in market & restricting exports but failed to make any dent on inflationary trend. That was a swing to completely opposite extreme. FIIs pulled money out of stock market to meet US financial crisis and Indian investors pulled money from real estate to face stock market crash. As a result real estate bubble also burst. Now government has reacted to recession by swinging to another extreme of loosening credit in the market. The impact of the additional money in the market is yet to be seen.

Coming back to the key issue i.e. why we didn't see it coming and took proactive steps. We became victim of our own success. Who is responsible for this? Banks, who over sold the mortgages in US? Or commodity producers who kept on increasing prices assuming demand is not sensitive to any level of price? Or investors flush with funds, who kept playing with stock & commodity prices in the market? Clearly, it is all of them. They all belong to a new sect of unregulated free economy that doesn't mind killing itself for the short term gains. They not only kill themselves but harm the entire mankind the way it hurts the most. They are a greater threat compared to any other foreseen dangers to mankind.

Are we learning a lesson & preparing to tame this sect so that we do not face similar situation in future? Hope the world will gain wisdom, amend policies, put in place some basic regulations in the free market. economy.