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Economic Analysis

The economy in the US and in many parts of the world have in recent years taken a turn for the worse. In the US, the problem is exacerbated by the complications brought about by the domino effect of the housing crisis. The housing crisis has brought about problems in the financial sector, which had suffered from defaults in mortgages. The large exposure in instruments tied to housing mortgages meant that when the people default, the banks are saddled with bad debt.

That in turn results in a loss of liquidity for the banks, and a deterioration in their basic balance sheet position. The government has largely left some institutions in the finance system fail, but there are also those that the government has opted to save. The bailout of the largest institutions in the housing market, Fannie Mae and Freddie Mac, and the recent bailout of Citigroup, are moves intended to shore up the confidence in the fragile economy, but they do have long-term negative consequences.

Already Americans and people in other parts of the world are curbing spending, and many are hit with shrinking spending power as inflation goes up and jobs become scarcer, the economies of the world as

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a whole faring badly, generating a negative spiral of shrinking spending leading to reduced economic activities from the producers of goods and services.

The table below tracks the extent of the damage to the economy in terms of the amounts allocated and spent in order to shore up the US economy, with the indication that as more money is spent now, the greater the pain later on. Looking at the big picture numbers, the implications for consumption are immense. Down the line, spending for durables are expected to go down, including appliances and related equipment. With fewer appliances being sold, it is easy to imagine that there will be less demand for appliance peripherals.

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