‘Our entire economy is in danger’ – Bush

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’.