Thursday, December 16, 2010

Economic Events of the Decade

I've compiled again and this time it's about the economy. From world recessions and bailouts to the rise of China as an emerging global superpower, the past decade has been an exciting one of financial upheavals. Let's take a look at a few memorable economic events of the decade.

Early Recession

The United States economy was already reeling from the dotcom bust when the 9/11 attacks affected it further. The New York Stock Exchange was shut down for a period of time, only the third time in history to do so. The market rallied briefly before sliding again in March 2002, reaching lows not seen since the 1997 financial crisis.

Other developed countries especially Europe were also affected by the recession in the early decade. Malaysia for the most part, managed to avoid the recession although demand for exports dropped.

Stock markets crashing after the 9/11 attacks

Enron fraud

Enron was caught in a massive accounting fraud late 2001 when it was revealed that the energy giant had hid billions of dollars in debt from its shareholders and forced its accounting firm Arthur Andersen to ignore the issue. Enron later filed for bankruptcy, the largest corporate bankruptcy at the time. Enron’s shareholders lost billions.

The Enron fraud is significant because the event, along with many other corporate scandals, led to the passage of the Sarbanes-Oxley Act of 2002 which protects shareholders and the general public from accounting errors and fraudulent practices.

Enron liquifying

Rise of the Euro

The Euro became legal tender in 2002 when eleven EU member countries adopted the Euro as their official currency. The Euro has become the second largest reserve currency and the second most traded currency in the world, after the US dollar. It now has the highest combined value of banknotes and coins in circulation in the world, having surpassed the US dollar.

A total of 22 countries currently use Euro. Out of the 22 countries, 16 are members of the EU, while the rest are territories outside the EU and African counties. Estonia will adopt it in January 2011.

Money, money, money.. Always sunny.. In the rich man's world

China emerges

The rise of China within the decade was akin to a rise of a sleeping giant. China had a double-digit growth during nearly the whole decade, making it the world’s third largest economy after the EU and the US. China is now the world's second largest exporter after the EU. China is also the second largest foreign owner of US Treasuries, owning around US$800 billion in US Treasury bills, bonds and notes.

The power shift from the West to the East is slowly taking place as China cements its place among the big boys of the financial world. All eyes are on China as her growth is expected to continue at an average rate of 8% a year.

Yea baby.. that's the way to go

Largest Donation

Billionaire investor and Berkshire Hathaway CEO Warren Buffett, the world's second-richest man, made history in June 2006 when he announced that he will donate 84% of his fortune amounting to US$37 billion to five foundations. The donation is thought to be the largest charitable gift ever.

$30.7 billion will go to the Bill & Melinda Gates Foundation, which specialises in finding cures for diseases that plague impoverished nations. The rest of the money will go to four other foundations headed by Buffett's three children, Susan, Howard, and Peter, and to the foundation in his late wife's name, the Susan Thompson Buffett Foundation.

Here, take almost all my wealth.. it's no biggie..

Subprime Crisis

On 9 October 2007, Dow Jones created a milestone as it closed at an all time high of 14,164.53. Markets were good and house prices soared. Banks had relaxed their lending criteria allowing subprime buyers, those who would not otherwise have qualified for mortgage, to get one.

The housing market bubble deflated rapidly by 2006 and as the interest rates rose, these buyers could no longer afford to pay their mortgage. Financial institutions were soon holding worthless loan portfolios, leading to a chain of events that brought down major financial institutions, prompted a massive retrenchment in consumer lenders, destroyed the credibility of ratings agencies and crippled the securitisation markets. The global recession followed soon after.

You thought wrong babe

Global Recession

The deepest economy downturn of the decade started in the US around 2007 and spread quickly across the globe. It was the worst recession since the Great Depression of the 1930s. Many financial institutions collapsed due to the subprime mortgage crisis and many other big corporations followed suit. Stock markets plummeted all around the world.

The US Government passed a US$700 billion bill on 3 October 2008 to buy distressed mortgage-related assets to keep the financial system afloat. In February 2009, President Barack Obama approved a $787 billion Economic Stimulus package in an effort to rebound the economy which did show some results. The economy is slowing picking up throughout the world but we are not out of deep waters yet.

Yup, the world's in deep shit

Lehman Bankruptcy

Drastically affected by the subprime mortgage crisis, Lehman Brothers, America’s fourth-largest investment bank and one of the most prestigious players on Wall Street, filed for bankruptcy on 15 September 2008 after negotiations for potential takeovers failed in what appears to be the world’s largest bankruptcy in history. Thousands of Lehman’s employees in New York and London were laid off, considered as one of the biggest single losses of jobs in the United Kingdom.

Lehman's collapse panicked global bankers and created a ripple that sent financial markets and many developed economies into a downward spiral, pushing many world economies into recession.

Broke, abandoned, dejected, ruined, devastated

Oil at all time high

Reports showing a decline in petroleum reserves, worries over peak oil, oil price speculation, natural disasters and tensions in the Middle East prompted oil prices to soar to an all time high of US$147.30 per barrel in July 2008. Malaysia experienced the highest fuel ever between 5 June 2008 to 23 August 2008 at RM2.70 per liter for RON97 fuel and RM3.15 per liter for Shell V-Power.

The onset of the global recession caused demand for energy to shrink and by December 2008, oil prices fell to a low US$32 per barrel. Oil prices stabilised by October 2009 at a trading range of US$60 - US$80 per barrel. In Malaysia, RON95 is currently sold at RM1.90 per liter and RON97 at RM2.30 per liter.

Now how about those weapons of mass destruction..

Greece & Ireland bailout

On 9 May 2010, a coordinated financial rescue plan of nearly US$1 trillion was announced by the European Union and the International Monetary Fund to help ailing Eurozone members facing huge financial debts. Approximately US$650 billion will come from EU member countries while IMF will contribute around US$320 billion.

Greece was given a US$145 billion bailout rescue to preserve the stability of the euro and the financial health of the 27-nation European Union but panic continued to spread which led to Ireland receiving a US$113 billion bailout on 28 November 2010. The rest of the Eurozone is still very unstable as Portugal, Spain and Italy might fall next.

Quick, give us cash we've overspent it all


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