This is a post I have been avoiding for some time. It was a much heated topic and it left a lot of people asking themselves "wtf just happened?".
Enough time has passed now to thoroughly analyze it objectively, so let's do that. Firstly, what was it and who did it affect?
Strangely enough, it wasn't really a global financial crisis. The whole world panicked, but it only really affected America and their investors. China's economy steamrolled ahead, Europe's economy continued its long predicted and expected slump and as for Australia's economy, we kept shipping coal to China who still was happy to buy it from us so all was good.
Some people would disagree and say it was Krudd's stimulus package that saved us but there really is no sound reasoning behind this frivolous idea. Stimulus packages only affect the consumer side of the economy, I think the consumer side of the economy can crawl up in a ball and die. If the plethora of shopping centres all go bust then it can only help the economy in the long run as labor is shifted to more important industries. Again some people may disagree with this, but I'm not going to go on a tangent justifying this, save it for another post.
Why did it happen is the main question or was the main question on everyone's minds. I have two very different ideas on the matter. The first is the obvious. Private debt. In particular, bad debts. The US's private debt has long surpassed private savings and this is never a good thing for the economy.
Corporate debt is bad too, but the great thing about corporate debt is that you can just let the bankrupt companies die. A lot of people will lose their jobs but it creates a niche market for new investors to fill in the vacuum with a more successful company, adding greater strength to the economy in the long run.
This is why I facepalmed at the US goverment's decision to "bail out" companies. All that does is slow and lengthen the sick companies' deaths when what we should be doing is speeding it up. Think of it like amputating a gangrenous leg. This is the free market approach.
Unofortunately, it is not possible to do the same with all the millions of people who can't pay the interest on their credit card let alone their credit card debt, let alone their mortgage on their house. That is going to take a whole new generation of more money mastering minors.
Which brings me to my next little hypothesis on why it happened. Ever heard of economics driven by demographics? Put simply, it is the premise that economy is not driven by policy, it is driven by people. It's a fact that when people have families they will buy stuff for their kids, so when you have a whole generation popping out babies like no tomorrow then theres a huge demand for bibs and cribs and the like.
...And when a whole generation gets old and decides to retire then thats a huge drop in production (less skilled workers) and also consumption (suddenly the retirees have to budget their money to last them the rest of their lives, midn you some of them still spend it frivolously anyway).It's a recipe for recession.
I shall stop here. For any Americans still reading this though... how were you affected by the GFC and the credit crunch?
Idk which is worse, your situation there at US or here in the Philippines. Great post, btw.
ReplyDeleteI feel one of the worst things about the financial crises is that the ones who caused it, is again making millions on doing the same thing that lead to the crise. The banking industry is aking growing money on trees and gives out billions in bonuses already, while the industry workers are still without work. So sad, so unfair.
ReplyDeleteAt first I thought the stimulus package was a beneficial idea after hearing all the reports and enthusiasm for it. Then when we got it, the freaking companies did not even use the money for what it's purpose was, a lot of shady corporations here... I live in USA east coast, near D.C.
ReplyDeleteGreat post. That was a bad time in Europe too. Some of my friends got fired because there was no work for them anymore. Lets hope things will get back to normal fast.
ReplyDelete"Think of it like amputating a gangrenous leg" Ha! The GFC and credit crunch has me on my toes with my money, I have to strictly spend on things I absolutely need.
ReplyDeleteAt this point though, being like 14 trillion dollars in debt... its just an amount that will never be paid back. Luckily both my parents and myself have jobs in today's economy.
ReplyDeleteexcellent post. I agree with you completely on the stimulus package's lack of beneficial effect. I'm Canadian but in the credit industry I do work with Americans and I can tell you many like "Butcher Bradley" above are strapping down and dealing with it like he is. However, many are using it as an excuse to not pay their debts and do just the opposite acquiring more debt with no intention to pay it back.
ReplyDeletei think we all need to cut back on things we do and buy
ReplyDeleteIt's only the prelude to a big crysis that will occur
ReplyDelete