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Panic over economic crisis
The financial markets lurched on the heels of a major Wall Street banking house filing for bankruptcy, with growing fears of a further downturn. This has brought about a global crisis and a need to calm markets and individual hysteria. The crisis is an aftermath of what is known as “credit mania” or the excessive expansion of credit.
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Why should I be aware of this?
Greening your Money
The crisis is not only restricted to the financial sectors but has created panic into the everyday lives of common people who are made to rethink about their short and long-term plans For many it means moving money out of the market and into foreclosed homes, gold, livestock or even just having a good time. Investments of many have dwindled to the size it was 6 years ago.
Finance experts believe that the market crash can result in having an adverse impact on consumer credit, and hurt common people who are likely to face higher credit card rates, higher minimum payments and tougher credit requirements.
There is an overall crisis of confidence and as a result, credit markets become so tight that small business don't get loans for development and individuals to buy automobiles or to finance houses.
How does this affect me?
Borrowing is going to be more difficult and further affect those who are already facing tough times.
The spillover effect
- Liquidity dry-up will hurt asset classes across board
- Property prices may not fall, but transactions will dry up
- Banks will have to liquidate their position to meet liquidity
- As a result, bond yields will rise as bond prices fall
- Commodities, which are falling, could slip further
- In times of uncertainty, gold will emerge as a preferred asset class
- Could impact sentiment, and consumer spending
Most experts see two distinct possibilities emerging out of the present crisis. Decreased willingness among people to invest or lend money and increase in unemployment numbers. Purchase emphasis is likely to be on necessities with discretionary items put on the shelf.
All about panic over economic crisis
One of the central points of the essay was that the growth in GDP in major and emerging nations over the last ten years was a growth built upon asset prices inflation and a boom in credit.
The crisis has been brought about by huge amounts of debt being carried by mortgage companies, brokerage houses, banks and personal lenders. The amount of shared debt of these companies and the reluctance to put out new capital have tightened liquidity .
Economists fear there is a psychology of fear among investors not only in the US but all over the world. If the problems in the financial system persist, businesses will have less money to put to work, job cuts will spread and consumers, already fearful, will have less money to spend, knocking the economy down another notch. High borrowing costs will further weaken the housing market, which is still struggling.
What can I do?
It will be helpful if we focus on our personal economies, rather than the national economy. Adopt the basic approach of saving whatever you can. Investors can and should diversify their investments as much as possible now, in order to be prepared in the event of a crash. Diversification and personal debt reduction is the key to ride out the coming bad times. Then when the market does finally recover, the investor who prepared is ready for the new boom times...and any future bad times.
CopperBytes
- As many as 48 percent of consumers don’t pay their bills because of loss of income against 20 percent due to defective goods and services and 25 percent for poor money management and unexpected emergencies. [1]
- Nearly 25% of all mortgage loans made in 2005 were interest-only.
- From 2004 to 2006, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. [2]
References
- Surviving the panic over the economy
- Wall Street's Ills Seep Into Everyday Lives
- Market Crash Could Impact Consumer Credit
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