Thursday, April 10, 2008

One more on housing crisis in US

The genesis of sub prime-crisis is the riskier credit policies provided for the housing sector in US. Considering the existing situation, I wanted to know what is the situation prevailing in US regarding the housing scenarios

As can be seen from the above image, the housing prices in US have been steadily increasing until 2005. It took almost 3 decades for the prices to reach the 1975 level. But since 2005 the decline has been so steep that in less than 3 years the prices have reached levels below the 1970 prices. In the fiscal year 2007-08 alone the prices have declined by more than 15%.

With this steep decline, the amount of investment that goes into the housing sector has obviously reduced a lot. This is reflected in the graph below:

As can be seen above the decline in the investment in the housing sector has decreased by around 25% and that the contribution of the housing sector to the GDP has also declined drastically.

This in turn means that the employment in that sector has decreased sharply which adds to the woes of the economy.

The decrease in prices has been so drastic that the affordability of the houses has actually increased.

But this certainly hasn’t increased the sales because the income levels have also declined a lot.

In fact the inventory levels of the housing i.e. the number of unsold houses has increased tremendously because of decrease in the sale of those new homes.

The above indicators are certainly a proof that US is no longer distant from a recession rather as some economists believe is already in recession.
(Source, IMF report 9th April 2008)

Thursday, April 03, 2008

Missile shield

There is a saying at our place that one is not able to take care of himself, but has started to protect the neighborhood. But it would be ironical if the neighborhood agrees that he can take care of them.

Similar situation happened with European Union and US. Rather, I should say, US is pushed into this deal by Mr. Bush who has had a terrible 8 years of near deplorable foreign relations. US wants to keep a missile shield over All the NATO countries as a protection to any future attacks. Earlier the EU wasn't convinced about it, but under the existing circumstances, where US makes everyone believe that Iran may attack, eventually EU fell for the trap and approved the defense shield.

I bet that most of the contracts for the defense shield will be awarded to US companies, and since US is heavily dependent on the performance of their military, this will certainly prove to be beneficial to their economy which otherwise is in doldrums.

It would be interesting to see how Russia and especially Mr. Putin would react to this situation, considering that he is going to attend the NATO meeting within this week. Russia has already raised objections about this anti missile shield program. So, the relations between US&Eu and Russia will not benefit from this program.

But the point to consider this, how many attacks of late have been because of huge missiles. Since most of the countries understand the devastation caused by huge missiles ( Except US ;) ) in the past decade the raising violence hasn't been because of the increased missile threat, but small small booby traps and militant attacks, which hardly use any of these missiles. So, the benefits that EU would have because of this missile shield are hardly convincing?

All the benefits that I can see would go to Mr. US Inc.

If the same amount can be invested on other programs like food security and other contemporary issues, I guess it would serve as a better shield rather than a missile shield.