2008 being revisited in 2011

2008 was a year that very few people would forget in their lifetimes. You need not be linked to the capital markets to remember the events of 2008 as almost all across the Globe and across all sectors, the tremors were felt with varying intensity.

Now as we have come to the middle of 2011, the fault-lines are starting to show up again. Indian markets started the year with a strew of negative events - big ticket corruption being unearthed, high inflation, rising interest rates and high crude oil prices. Developing markets continued to outperform the emerging economies as economists went gung-ho about the growth prospects of the shattered developed economies. US was seen as the clear market leader in the global rally. Unfortunately the party on the street has become very short lived.

Unlike 2008 when it was the "Too Big to Fail" banks from the US which were at fault and collapsed, this time around in 2011 its the Sovereign Governments whose neck has been put on the line. Countries which till yesterday figured as the top tourist destinations of the developed world, became the poster boys of Sovereign defaults. These countries made it clear to the world, either the European Union (EU) bails it out or there would not be any EU tomorrow. What initially looked like a European problem, soon raised its head in none other than the mighty USA. With the Debt Limits becoming a national political issue in the US, the world could do little but watch the debt limits being raised to another astronomical figure of a few more trillion dollars!!

Now with fresh concerns of European banks falling, the markets are on tenterhooks!! People are talking of a Lehman type crisis in Europe. Growth rates are being downgraded for the developed and emerging economies and also for the World at large. Where would all this lead to? Has Lehman become the synonym for financial crisis? Before we could lick our wounds from the last crisis, we have been pushed into another one and this time around the wound seems to be quite deep. Governments are in trouble unlike the previous case when governments bailed out the banks. Fed cannot come to the rescue of the US government by running its minting machines overtime. That would be the silliest thing to do.

The problem with the current global economy and more specifically the financial sector is that greed has become the corner stone of its demise time and again. We do not seem to be learning from our past mistakes. We pumped in $700 bn in 2008 and created the current mess. Now debt limits are raised further and stakes are higher. Its no man's guess what the size of the next crisis would be.