Recession or Depression

Last two posts were slightly off the topic. Lets come back to the topic. What is happening with US and what is happening to India.

People told me that i am talking about the worst case scenario. US cannot fall into a deep recession for a long period of time. India cannot grow beyond a point.
But, I am talking about the best case scenario. Let me tell you, how will the worst case scenario look like.

Airlines companies loose money because of less travelers. They cut 5000 jobs.
Bear Stearns Fails. 5000 people loose jobs.
Freddie Mac fails. Another 5000.
Fannie Fails. Another 5000.
Lehman fails. Another 5000.
Citigroup cuts 50000 jobs.
People stop buying cars.
GM fails. Another 3,00,000 people loose jobs.
They default on house loan, credit card loans, since whole US never thought about savings.
Citigroup fails and get a government bailout. But 1,00,000 people loose jobs.
These people now stay at their home and take care of kids. So 2,00,000 nannies and baby-care companies loose jobs.
These people cut down on airlines, perfumes, going shopping, they just fullfill their bare necessities. Gucci fires people. Mercedes feels the heat in Germany. Boeing and Airbus fire people.
People travel less, so airlines companies fire some 50,000 people.
People travel even less, so crude oil falls. Some gulf nations start firing people.
Gulf nations stop spending on their useless infrastructure projects (like making 1km long buildings and 20 lane roads for a population of 50 lakhs)
Gulf fires some 5,00,000 construction workers from India, Pakistan and Bangladesh.
Construction activity slows down, steel manufactures fire people.
Steel goes down, Iron ore diggers fire people.


People start losing jobs. Since, they are losing jobs they spend less. So, companies which are dependent on those spending stop being profitable, so they also fire people. Once, this negative spiral of job-looses continues, nobody can stop it. Government will be out of money to give unemployment benefits. Ofcourse, it can print money and give but that money just leads to inflationary pressures.
Things end up with a terrible depression with assets prices losing more than 80% of their values.
Lot of people commit suicides, some burn down their houses. The black,white,Chinese, Indians, Japs, brown, yellow all communities start over each other leading to massive riots and fucking up of the whole economy.

The worst case looks like above. Ofcourse, i am talking about the best case and it looks like this.

Fed takes interest rate to zero or negative 0.5. US faces deflation for next 15-20 years, like Japan did. US changes its focus from a domestic consumption economy to export oriented economy.
Dollars adjusts itself, to make the new-born US economy function well. All sorts of useless import, including import of cheap labour on the name of outsourcing to US stops. US manufactures textile, foods and toys for itself rather than importing from China. These new sectors create new jobs for people from banking, auto and other dysfunctional, overgrown industries. All non-US citizens start flowing back to their own countries and contribute to their own economy, because they will be the first ones to get fired.
China allows its currency to appreciate at a faster rate, and stops exporting to the world and gets new industries to serve their own internal economy. Either one or both of India or China, replace US to become the next domestic consumption story. World does not face a depression. China and India's growth counterbalance US degrowth.
I will not talk about Europe, because they are in biggest problems. Europe has lived in too much peace, now is the time to work hard.