Credit Crunch


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QUOTE (monsta666)The British economy is facing hard times. That cannot be denied, but I think some of the earlier statements that the world is facing a 30's style depression is somewhat exaggerated. Yes it is true, the current economic crisis is bad but then the 70's and even late 80's/early 90's crash were bad also.

Nah, you're far from the truth. There have been no huge banks collapsing, merging or being nationalized anytime since the 30ies. Large companies have not gone bankrupt overnight, unemployment has not risen so sharply for as long as anyone can remember. Tax fraud and tax havens have never been adressed with so much political determination.
Everyone in the West is strapped for money and investments !

Every serious econmist warns about a crisis of unprecedented severity. And the political world has taken the measure of the problem, otherwise they wouldn't pour stimulus after bailout after rescue money into the economy.

IMHO, today's crisis is to that of the early 90s what generalized cancer is to a summer cold.



QUOTE (monsta666)Saying all that it is not all doom and gloom. Some forecasts state the rate of decline is decreasing. In other words, people expect the economy to decrease by a lower rate in the next quarter (say 1% as opposed to 1.5%). Now I know that predicting the economy is notoriously difficult but I think the economy (the British economy at least) will reach it's lowest point sometime in October 2009.

Well, I sure hope you're right, because I'm currently unemployed and eager to work.
But some people say that the situation is even worse in Europe than in the US; it's only presented differently.
Besides, they say that the stimulus plans in Europe are meager compared to the Obama initiative: 5% of GDP in the US to be compared with 1.3% in UK, 0.8% in France and only 0.4% in Germany.

Also - don't hope that UK will start growing while the Eurozone is still in decline.
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Sarkozy gave some of this rubbish in one of his TV speeches : 'I hope that France will be less affected by the recession than its neighbours and will emerge sooner from the crisis'. What an idiot. Over 60% of French exports are directed towards Europe.
EU economies are closely interwoven, so they will start recovering together if ever again.


QUOTE (monsta666)
Britain and the US are following similar strategies in tackling the recession. Both countries are providing various stimulus to kick start the economy. To some critics they will say: "they are borrowing their way out of trouble." The main defence both countries will make for their policies is that they want to avoid the mistakes of Japan in early 90's. When Japan experienced a recession in the late 80's they were overcautious when it came to tackling the economy. They did not provide many stimulus packages, as a result, it experienced a period of low economic growth for much of the decade. BritaiECBn and America want to avoid this scenario and do not want the recession to drag out for many years.

Both the US and the UK have take the option to print money. It's a powerful lever to kickstart the economy, but they ought to be more carefull about how they use and abuse it. Because if the world suddenly decides that the printed dollars and pounds aren't worth pigeon s**t against - say food or energy, then the prices in US and UK will skyrocket.

The Eurozone countries have abdicated their right to emit money. Only the ECB is allowed to issue Euros. To be precise it can lower its interest rates, at which point the Eurozone private banks and states become more interested in borrowing money from the ECB in order to invest them.
Usually it's the private banks who ask for money to be printed, so they they can invest in businesses. But since the crisis started they are afraid to invest, because their investments might get "swallowed up" by some troubled assets hidden somewhere. (You will ask "what ?? how can this be ?")
So the states have taken over and started borrowing money themselves, money that they've distributed as stimuli. But those stimuli were indeed swallowed up by some troubled assets hidden somewhere.
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And now everyone's in dismay, while job insecurity is spreading. To my mind, nationalizing all the banks immediately was - and still is - the smartest move for many countries. For those who can afford it at least ... Eastern Europe is 'owned' by western banks for instance.


Anyway, the situation is very bad. Some experts are predicting 'geopolitical dislocation' for the end of 2009 ! LEAP Europe 2020
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Just to leap in without reading the whole thread, the way the credit Crunch affects me is quite simple: I now get pretty much 0% on my savings, which is leading to me considering withdrawing all my money to spite the bank. Really the interest rate cuts are stupid since what banks need to become viable again is an influx of real money to improve their liquidity. But instead savers continue to be driven away.

In every other way my life goes on as usual, in fact I don't know of anyone who is suffering "credit crunch" apart from by way of having to hear the the endless news stories about it.

I think the problem arose because some people lived way beyond their means leading to an artificial and unsustainable level of economic growth using borrowed money (money which probably didn't really even exist execpt as circular loans between banks). Now the merrygoround has stopped, so the overspenders have to pay off their debts and their spending will necessarily be reduced by the same degree that it was previously inflated, leading to a slump.

But when the boom and bust are taken as a whole it ought to come out square: you can think of the boom simply as things bought early. The only reason it doesn't is that companies (and banks) that were coining it in during the boom didn't think to set the extra income aside to tide themselves over when the bubble burst. Instead they paid it all out as dividends or took it as bonuses and spent it, etc. with the result they are now broke and have to lay off workers or even go bust.

When you think about it, this means that someone somewhere must have the missing money, there are people who got rich creaming off the profits and are now sitting pretty.

Anyway, IME those of us who live within our means are continuing much as we always have, in fact I am spending more than before. Only this week I spent £3 on 3 shiny new things: some headphones, a usb card reader, and a 4-port usb expander. Yes they cost me £1 each (and they are all perfectly good items too!) (Admitedly I was surprised the headphones sounded good though, usually headphones in that price range sound distorted.)

The crazy thing is that I see stories in the news about how people are having to learn to start shopping at cut-price stores for things. Well duh! If they were stupid enough to pay more than they had to for things before, no wonder they're broke now! It's like, I've always wondered, why do people pay £50 for some brand-name jeans when you can buy perfectly good jeans for £3. Let's face it, both pairs were probably made in the same Chinese sweatshop, it's just that one includes a £47 donation to some big corporation.
 
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