The current economic crisis
“Crisis” is clearly not a pleasant word and when it is connected with the economy it surely isn’t too pleasant. But that is exactly what has happened world over as the economic crisis is stealing the lime light in the news, constantly making it to the headlines.
A crisis, be it economic or otherwise can never be attributed to one incident or event, instead occurs due to a chain of events, if not a cycle. But it could be averted by all means given those concerned parties are ready to address the issue, jointly.
From the dawn of the new millennium the globe experienced a sharp increase in essential commodities. Economists attribute this increase to various factors including changing weather patterns, rise of production cost and escalating wars. The situation began to change from bad to worse as several countries began to print money to cover up their expenses. This increased the inflation in almost all countries in the world. The crude oil prices then hit a record high of 147 dollars a barrel and as a result, transportation costs sky rocketed across the states.
The cycle kept on getting worse and the cost of commodities kept rising while the salaries of the average man remained the same, mainly because the companies were trying to deal with rising production costs. Organizations were also compelled to get rid of many of their employees as they could no longer afford them, resulting unemployment to hit the ceiling. This prompted many to obtain financial loans and those who had already obtained loans and mortgages could no longer pay their installments. On the other hand banks were a little bit greedy, so they were lending money even to those with low credit rating. Then, those with the low credit rates stopped to pay their debts. Banks had to start selling houses, and collect insurance. The result of selling houses was the decrease of real estate prices (about 15-20% in last 12 months). The result of collecting insurance was bankruptcy of great insurance companies. This left the leading banks in deep trouble as they faced a crisis of liquid cash and deposits. By then everything had blown out of proportion.
Dubbed the super power of the world, even the United States did not go untouched by this crisis. In fact, it is where this whole menace initiated. The situation aggravated as the dollar weakened day by day mainly due to US dependence on imports. Thus, leading banks began to shut down, the Dow Jones and Wall Street stocks came down sharply. It was only the beginning of the crisis as markets across the continents hit the downward trend. For an example, Iceland which was once considered as one of the wealthiest nations could not bear the heat on its own. It was thus prompted to seek the assistance of the International Monetary Fund to support its banking system. Over in the Middle East, Saudi Arabia pumped in 3 billion dollars to its economy to improve the liquidity in the market and even went on to cut its benchmark interest rates. Even China which boasts of the world’s fastest growing economy could not stand still as they quickly took measures to cut rates, amidst the crisis. But the biggest bailout plan is however being proposed by the US, a staggering 700 billion dollars.
How will it affect the average Joe is the next big question. Well, your savings will be at risk. Your job might be at risk. The prices of commodities will increase. As a result you will have less buying power. Since the shares are tumbling and companies keep losing, the dividends you are expecting at the end of the financial year might end up in a dream. Mortgages and other credits will be more expensive. Therefore cut the frills and stick to the basics, as that is the order of the day. If you have cash, this might be a good moment for buying stocks.
The whole crisis will not end any time sooner, but for the world to see light at the end of the tunnel all global leaders will have to reach a consensus to bail out of the situation, united. But an exact date could not be predicted as many say we have still seen only the tip of the iceberg.
A crisis, be it economic or otherwise can never be attributed to one incident or event, instead occurs due to a chain of events, if not a cycle. But it could be averted by all means given those concerned parties are ready to address the issue, jointly.
From the dawn of the new millennium the globe experienced a sharp increase in essential commodities. Economists attribute this increase to various factors including changing weather patterns, rise of production cost and escalating wars. The situation began to change from bad to worse as several countries began to print money to cover up their expenses. This increased the inflation in almost all countries in the world. The crude oil prices then hit a record high of 147 dollars a barrel and as a result, transportation costs sky rocketed across the states.
The cycle kept on getting worse and the cost of commodities kept rising while the salaries of the average man remained the same, mainly because the companies were trying to deal with rising production costs. Organizations were also compelled to get rid of many of their employees as they could no longer afford them, resulting unemployment to hit the ceiling. This prompted many to obtain financial loans and those who had already obtained loans and mortgages could no longer pay their installments. On the other hand banks were a little bit greedy, so they were lending money even to those with low credit rating. Then, those with the low credit rates stopped to pay their debts. Banks had to start selling houses, and collect insurance. The result of selling houses was the decrease of real estate prices (about 15-20% in last 12 months). The result of collecting insurance was bankruptcy of great insurance companies. This left the leading banks in deep trouble as they faced a crisis of liquid cash and deposits. By then everything had blown out of proportion.
Dubbed the super power of the world, even the United States did not go untouched by this crisis. In fact, it is where this whole menace initiated. The situation aggravated as the dollar weakened day by day mainly due to US dependence on imports. Thus, leading banks began to shut down, the Dow Jones and Wall Street stocks came down sharply. It was only the beginning of the crisis as markets across the continents hit the downward trend. For an example, Iceland which was once considered as one of the wealthiest nations could not bear the heat on its own. It was thus prompted to seek the assistance of the International Monetary Fund to support its banking system. Over in the Middle East, Saudi Arabia pumped in 3 billion dollars to its economy to improve the liquidity in the market and even went on to cut its benchmark interest rates. Even China which boasts of the world’s fastest growing economy could not stand still as they quickly took measures to cut rates, amidst the crisis. But the biggest bailout plan is however being proposed by the US, a staggering 700 billion dollars.
How will it affect the average Joe is the next big question. Well, your savings will be at risk. Your job might be at risk. The prices of commodities will increase. As a result you will have less buying power. Since the shares are tumbling and companies keep losing, the dividends you are expecting at the end of the financial year might end up in a dream. Mortgages and other credits will be more expensive. Therefore cut the frills and stick to the basics, as that is the order of the day. If you have cash, this might be a good moment for buying stocks.
The whole crisis will not end any time sooner, but for the world to see light at the end of the tunnel all global leaders will have to reach a consensus to bail out of the situation, united. But an exact date could not be predicted as many say we have still seen only the tip of the iceberg.
Labels: general
posted by Zoran Maksimovic at
5:58 AM
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