Recently the EU and the UK have named plans for multi-billion dollar bailout packages, after the famous $700bn bailout authorized by the US to help curb the recession. Shortly thereafter, the UK announced it would bailout the financial sector to the tune of 37bn British Pound Sterling. And in the last several days the European Union named a 200bn Euro bailout plan. So will these bailout plans actually work is the question on everyone's mind.
I think there are a couple of key indicators to watch over the next 18-24 to determine whether these bailout plans were a waste of taxpayer money, or if they actually saved the financial sector from complete collapse. The first indicator to watch is the price of oil on the International market. In mid July, oil traded for $147 per crude-oil-barrel, whereas the most recent figures from Friday November 28th show that oil is being traded at $53 per barrel. This sharp drop over four months spells uncertainty and turbulence in the market. Until we reach a more steady oil price, we cannot expect the economy to improve. This is evident by the steady oil prices seen during the mid-1990s, whereas now we see huge rises and drops in the price of oil, which the world has an intense addiction too.
The second important indicator to look at is the speed with which these bailout plans can my implemented into the market place. The proof may already be in the pudding on this one. This is evident by the worsening recession and continued worsening financial crises. Furthermore, the increased unemployment claims on a monthly basis are the result of a contracting economy because of a lack of capital investment. If the US bailout package for example is handled properly, the taxpayers do stand a chance to make back some of the money.
The last indicator to watch is the movement of people. If people go to the shopping malls this Christmas season, if they go on vacations, if they go out to dinner rather than eat at home, if they eat less SPAM, then we know that the recession will come to an end sooner rather than later. However, the less money people spend, the deeper the recession could go. It sounds crazy, but the money must get put into the economy in one of two ways, either from household consumers or from the government. Obama has proposed a strategy to improve the economy through government spending to improve bridges, schools, and other infrastructure. But what will the EU and UK do? I think the world will wait to find out.
Those are my thoughts on what might happen with all these billions of dollars spent on bailouts.
Cheers,
ZGSKIER
