There is so much debt in the US and global economy, the recession would result in many problems associated with companies and individuals unable to service the debt. In Eastern Europe, the former communist states were like the Asian Tigers borrowing heavily from English and Swiss banks to fund their growth. There is now the equivalent of a currency crisis there as the currency of these countries have collapsed (by 50%) and their debts in Swiss francs/ British pounds has doubled within a few months. EU refused to fund a rescue package - the Germans objected strongly wanting to keep their deficits down. This alone might erupt into a full blown crisis of the same magnitude as the Asian Crisis. But this is not the only time bomb ticking. The next few shoes to fall in US are the other types of debts outside of housing - student loans, commerical property, credit cards, etc. The reason why many analysts think BoA and Citigroup are insolvent is the deterioration of commercial property loans on their books. Some people believe these are even bigger than the housing loans. Much of the effect is not felt yet because the properties are still under construction or are leased out to existing tenants. With the recession, shops become empty, rents will fall and it becomes hard to service these loans. As the unemployment rate soars, credit cards defaults will increase and people will default on their car loans ...and so on. The main problem is not the recession but the amount of debt the global economy has piled up.
"I know people say, why didn’t you help households more directly, but the right way to help people now, to us anyway, is not to give them vouchers or coupons or hongbaos to spend but to help them keep their jobs.” - PM Lee, 1 March 2009 [Link]
The time for saving jobs is over. Anyone still thinks Jobs Credit Scheme is working? Oh goodness, helping the jobless is not about giving them hongbaos! For the JCS, the govt gave $4.9B to companies for an almost negligible impact. It is now time for plan B - helping the people. Where is the balance in our policy making? $4.9B would have been a critical lifeline that will save tens of thousands of Singapore families in this crisis. Right now people can't even get rental flats - the queue is 4 years long, walk around and you noticed more families are put on PAYU - use electricity only when you have money not when you need it, proper nutrition is a problem for many Singaporeans and many do not seek medical treatment when they are sick because they can no longer afford it. To help these thousands of Singaporeans does not even require half the amount they gave out in the JCS scheme. Some people might have supported the JCS because they thought it is a plausible scheme that may work, but MP Low & NMP Siew are right. The collapse in demand is so sharp, companies simply kept the money rather than expand or retain staff. ...PM Lee said he did it the "right way"...no he didn't, what this govt did was ineffective. Not giving people aid directly is an ideological decision not one based on pragmatism. These are the toughest economic conditions we have ever faced, the govt has to do what is necessary not what they think is ideologically right.