Will a recession hit our shores?

More and more economists are predicting about the severity of the bad US housing loans and its impact on the global markets.

Commerce International Merchant Bankers (CIMB Malaysia) chief economist Lee Heng Guie told StarBiz that it could result in an implosion in funds and banks that are holding these bad loans,” Lee said, citing US Federal Reserve chairman Ben Bernanke's estimate of a total loss of US$100bil due to subprime loans.

Delinquency rates for subprime loans were high at 13.8% in the first quarter this year, he said.

An article in Economist.com, titled 'Heading for the rocks' gives three scenarios.

• Scenario 1. The Economist Intelligence Unit’s central forecast, to which we attach a probability of 60%, sees the impact being contained by timely monetary policy action, with only a modest effect on the global economy.

• Scenario 2. Our main risk scenario, with a 30% probability, envisages the US falling into recession, with substantial fallout.

• Scenario 3. Should the US enter recession, another, darker scenario arises: that corrective action fails, and severe economic repercussions cascade from the US into the world economy with devastating effect. We attach only a 10% probability to this outcome, but the potential impact is so severe that it warrants careful consideration.

Scenario 1 is a normal capitalistic phenomenon that sees periodic corrections in the financial markets. The other two scenarios pose more serious questions and wide ranging global impact on financial markets. In any case a recession would see people losing jobs in the US and elsewhere in the world.

Consumers will have less spending power and the leisure and travel industry will take a hit. This is where Maldives will get effected.

One wonders whether Maldives which is heavily dependent on foreign tourism, is able to see the dark clouds on the global economic horizon. What kind of an impact will the Maldives experience if there is world wide recession in the near future?

This question is pertinent because our political parties are busy raising the tempo of discontent and divisiveness after the recent referendum for governance and everyone has someone to blame. It seems, the more action we take to solve our problems, with a strange multiplier effect the number of problems increase.

Just when you think that we have hit the bottom and things could not get any worse, the next incident makes you sway your head in disbelief. Our problems have become so enormous that we have reverted to the law of the jungle.

In an article on Haveeru Online yesterday about increased theft during Ramadan, there was a photo of a person who was involved in a theft last year, being paraded half naked on the road after shaving his head. A group of people around him were ridiculing and some laughing at him.

The man has committed a crime and should be punished according to the law. To take joy in a man's misery in that manner is unbecoming of civilized human behaviour. It is reminiscent of the dark age. I have never imagined of such a sight in Maldives, the 100 per cent Muslim country that earns its living as the peaceful idyllic sunny paradise.