Back to post G20 reality this week
Posted on 05 April 2009 with no comments from readers
Last week the G20 summit in London dominated the economic news agenda, and even took attention away from the appalling 650,000 jobs lost in the US in March, bringing unemployment to 8.5 per cent.
However, with Chrysler and General Motors now under order to deliver realistic recovery plans within two months the clock is surely ticking towards the next down phase in this recession.
No realistic plans
It is increasingly obvious that there are no realistic recovery plans for these two companies whose products compare unfavorably to the competition and whose byzantine internal structures are hopelessly immune to reform.
But a Chapter 11 process for two of the largest US firms is not going to be painless, and at the very least unemployment numbers will continue to rise. The downward pressure on house prices will continue and that will continue to weaken bank balance sheets with bad debts rising.
Professor Nouriel Roubini – who predicted the slump when everybody else was still enjoying the boom and their bonuses – thinks that several large US banks will still have to be nationalized to avoid systemic failure. And it will not be until this pain is taken that recovery can be contemplated.
The recent slump in global trade by volume contractions not seen since the 1930s gives no reason to believe an early recovery is in sight. It is wanton optimism to believe the worse economic slump since the Second World War, as the IMF terms it, could be over quickly.
Cut costs
To survive a recession the formula for any business is very simple: cut your costs to a level that produce profits against the new level of demand.
The risk of over-trading into a recession is equally simple: if a quick recovery is not forthcoming then you rack up losses until your cash is exhausted and the banks call in the receivers to recover their money from your remaining assets.
Managers who chose not to face reality in a recession are condemned to meet their fate. And although Dr Roubini is never likely to become the life and soul of any party, his words are those to which we should all be listening now.
