October 10, 2008

THE CREDIT CRISIS -1

Posted in Economics, Politics, USA politics tagged , , , , , , , , , , , , , , , at 8:26 am by randallbutisingh

THE CREDIT CRISIS -1

By Cyril G. Bryan, Guest Contributor – Friday October 10, 2008.

A Credit Crisis has hit the world’s financial markets starting with the collapse of a number of financial institutions, notably in the USA and the U.K., which has raised the fears of world wide economic depression. The normal operations of business worldwide is being threatened due to a credit squeeze engendered by the drying up of funds as financial institutions failed or were rescued by governments or quickly sold or merged.

This emergency has forced the US government to vote a trillion dollars in aid to their institutions, a political hot potato in this election season. The UK, like the USA has had its share of failed banks and real estate markets as property values collapse. The European Union, especially Germany, has also felt the effects of this world-wide deflation. The Asian markets were just recovering from their own recession and now they have to deal with this new threat. We now live in an interconnected world today, and what affects one … affects all.

There are fingers pointed in all directions as to entities or persons responsible for this sudden illness. “Confidence” is the currency of markets and they rise and fall mostly based on perceptions regarding positive or negative outcomes. Many felt the boom times would never end. Now, confidence is low and every important economic index is rapidly trending lower, and for many wiping out most of the “inflated gains” of the last decade.

Now today is Friday, October 10, 2008 and  we see another steep drop in the markets… who knows when and where this will end. The fact is that the interconnectedness of the world, now forces everyone to work together, at least in the economic spheres. Business cycles of boom and bust are recorded throughout history. This is just another one. However, are we prepared for this particular one? “Net worth” is caught in a deflationary spiral and many will find it difficult to survive, as they lose their jobs and income.

The next big crisis may soon be in personal credit card debt. We have emulated our governments and corporations by living on credit driven by impulsive buying and uneconomic debt creation. As people lose their jobs in a recession or depression, many may be unable to keep up credit card and loan payments Many USA citizens live on credit and owe substantial loans and card debt. In a collapsing economy this debt may become uncollectible, thus putting further pressure on banks and other credit institutions.

We have built a make believe world around material success. Maybe this financial crisis will be a sobering “wake-up call” to all to conserve and be less greedy. Many are fearful while others are looking at the trends and seeking solutions. It would be interesting to see if this turmoil creates greater controls and oversight in all markets with co-operation and synchronization of policy. In a connected world, fostered by Globalization, the world requires 21st century economic control systems. In some cases we seem to be still using mechanical knee-jerk control methods of yesteryear to control a world of instantaneous feedback and decision-making.

— Cyril Bryan – cybryan@gmail.com

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2 Comments »

  1. Robert Anderson said,

    Cyril:
    This is an excellent article that gives me a better idea of what is going on in the banking and credit markets.There is so much information out there that it is difficult to comprehend the underlying issues in the sound bites we get.
    Thanks for your insights.

    Robert Anderson

  2. John Roberts said,

    Hi,

    I greatly enjoyed looking through your blog “randallbutisingh.wordpress.com” and found an informative one for finance related topics.I have also some finance related web sites having more information regarding various financial problems and its solutions.So,I think it would be beneficial for both of us if we will join in a community.If you are interested then please contact me at- johnberts123(at)gmail.com

    Thanks
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