‘Our entire economy is in danger’ – Bush

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In early August, the blog noted that politicians were beginning to recognise the seriousness of the economic situation. First, China’s finance minister Liu He warned that ‘an economic restructuring was inevitable’. Then the UK’s finance minister said the ‘global economy was at a 60-year low’, and France’s Prime Minister added that the world was facing a ‘very, very serious global economic slowdown’. Last night, US President Bush joined the chorus, warning that ‘our entire economy is in danger’.

No doubt Congress will now try again to approve some form of bailout for the US banking system. And stock markets may well rally, at least briefly, in relief. But as the Wall Street Journal comments this morning, the underlying issue behind the crisis is that ‘homes were grossly overpriced, fueled by binge borrowing. For that to correct, prices must return to more affordable levels’. And it adds that even with a bailout, ‘it isn’t clear home prices will rise. They could simply stagnate.’

This is a critical issue for chemical companies, given the importance of housing markets for chemical demand. And a new report today suggests they are getting worse, not better. Prices are now falling in 21 of the 33 countries monitored by Global Property Guide. A year ago, only 5 countries were in a downturn.

As the blog suggested 10 days ago, CEOs could be well advised ‘to start preparing contingency plans to survive a major economic downturn’. The chances of this occurring remain ‘uncomfortably high’.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to ‘Our entire economy is in danger’ – Bush

  1. Robbo 25 September, 2008 at 3:54 pm #

    Hey Paul, Stagnation has got to be better than a sharp painful correction that makes people homeless… I can understand the distaste of the American people to throw money at what they see as a bunch of irresponsible fat cat bankers… but it could be better to make a relatively large but manageable payment now than find that you’ve not got the money in a couple of years time if demand and tax revenues go south.

    As things stand, Bush, Obama and McCain will need to come up with something tied to considerable regulation of the bank/hedgfund interface/area to get anything on to the statute book.

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