Tuesday, June 23, 2009

The "Great Recession" Just Won't Go Away

The World Bank released some very glum news yesterday.

The World Bank is an International Financial Institution funded by member states (governments). It's more formal name is the International Bank for Reconstruction and Development. The World Bank was originally established as a vehicle for reconstruction of Europe and Japan after World War II.

Over time the role of the bank expanded to include poverty alleviation and and support for developing world countries. Money given out by the World Bank is guaranteed both by the lending countries and the receiving countries.

In March of this year the World Bank predicted a 1.7 percent decline in the global economy. Yesterdays updated forecast warned of a 2.9 percent contraction. More specifically the forecast for the big economies are scary, with a 3 percent drop in the United States the world’s biggest economy. Japan’s gross domestic product will shrink 6.8 percent. The European economy may tank by 4.5 percent

These are all macro numbers, but in plain english, it means continued high unemployment, sluggish consumer spending and very high government deficits.

While not specifically mentioned in the World Bank report, the continued contraction of the world economy means something else as well. The value of homes, and property, will continue to decline. Many home owners with good credit are now under water, that is the value of their homes are less than the outstanding mortgage.

In the United Kingdom fully 10% of mortgage holders with good credit are under water.