Since the coming of the current global financial crisis, economists worldwide have been struggling to choose one from the four English letters V, U, L and W to describe the trends in the markets fluctuation. The forecasting work now looks like filling in a multiple-choice questionnaire with answers drawn from letters of the English alphabet.
Most economists were suggesting a V-shaped recession when the financial crisis emerged, saying that although there was a downturn in the economy, it would not be too serious, and not long after bottoming out the economy would recover. At that time, experts predicted that by the end of 2009 the economic crisis would be history. Before the summer of 2008, financial institutions and most Wall Street experts believed the financial crisis would be a V-shaped recession.
Even after September 2008, when the US government decided to bail out Fannie Mae and Freddie Mac, John McCain, one of the US presidential candidates, concluded optimistically that the foundation of the US economy was healthy. His remarks shocked the whole country, and Barack Obama criticized McCain for being aloof and removed from reality. With deepening crisis, McCain found himself even further away from the US presidency. Soon the cruel economic reality ruthlessly rejected the forecast of a V-shaped recession.
Afterwards, most experts began using letters U and L, with more and more leaning toward L. A U-shaped curve implies that the economic crisis worsens rapidly and the economy will experience a long, winding course before picking up. The L-shaped trend represents the severe economic outlook that after the decline of the economic growth rate and the coming date of the future momentum is unknown. Of course, there are also economists who use the letter W to portray the trend of the financial crisis.
Chairman of RGE Monitor and Professor of Economics at New York University's Stern School of Business, Nouriel Roubini said that he thought the possibility of reaching an L-shaped depression was only around 10 percent six months ago, but now he believes that the probability is over 30 percent. He also forecasts that the world's economic growth rate in 2009 will be negative 0.5 percent. Developed nations will all see negative growth and emerging economies will experience a "hard landing."
Performance in the financial markets now seems to confirm his predictions as well. The world economy is developing along an L-shaped curve and two of the three indexes of the New York stock markets have dipped to their lowest levels.
It will take time for people to track the onset of a financial crisis to its spread and finally to understand it clearly. Facing the complex economic phenomenon, even economists who have received specialized training find it hard to forecast the trend by examining initial signs.
Experts' description of the economic trends turned from a V-shaped recession to U-shaped, and then to L-shaped, delivering a terrible message that the crisis is worsening, people's incomes will decrease, and their lives will become harder.
While these facts are unavoidable, two interpretations are inherent. Changes in the predicted trend of the financial crisis reflect not only economic difficulties, but people's profound recognition and real feelings of the seriousness of the financial crisis. A correct understanding of the difficulties is always the first step towards solving it, as a diagnosis is the first step to finding treatment.
In this sense, only when countries all over the world are aware of the gravity of the financial crisis, can they face it more bravely and adopt stronger anti-recession measures in order to pull together in times of trouble to weather hardships.
By People's Daily Online
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