Summy
New Member
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So I got two requests to explain the best I could, the economic crisis that we are facing today. Watching the news, and reading the paper, one can get you confused easily, so I'll try my best to explain in the simplest of terms. I'll start with the basis of the world economy and its problems, then to the US, its important to understand both.
The foundation of any slow down or recession (I will use recession as many experts think it will happen), is inflation. Inflation is the basic rising of prices for all goods, and usually indicates a dilution of the value of money. Prices increase, everyone buys less, less power of the currency. Inflation usually starts with dominant natural resources, as a consuming society, we use the natural resources more than we produce them. So, what natural resource are we using? Oil. The rising prices of oil, and not controlling it, led to the inflation of oil. The inflation of oil led to the inflation of food, goods, and plastics, which was devasting for many nations. The global recession is focused around this, the inflation of world food price.
So many factors are leading to the increase of food prices, which kills developing countries, believe it or not, the foundation of a strong global economy. You can always judge a GOOD economy, by evaluating the poorest (not the richest) countries and their economies. As we see in India, biofeul usage, and the conditions for making food all around the world is suffering, and this leading to the increase of price for food. If not the largest problem is the conversion from food to fuel in crop growing. With the demand for oil being huge, decrease importance of fossil feuls, the most powerful nation not abiding by the Kyoto, India and China NOT complying with the kyoto, oil is a huge buisness. Growers of grain are switching from grains for food (increase food supply, more product, more cheaper) to grains for feuls. From the growers point of view, oil prices are not locally set, its a global market. So, the prices in India are competitive for the prices in the US. Well, the US's conditions for growing and soil, is much differenth than those in Africa and India, so there is no sort of regulation as per need.
This the basis for people concerned about developing countries and now the interesting part, the US, and how it connects to the rest of the world....
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The US's finicial problems consist around two main areas, the housing market, and the declining dollar, which led to problems with major banks.
The housing market, so the housing market crisis goes back a couple of years. Basically, when one buys a house, there are many financing options, including one that is the SUB PRIME option, a more risky transaction. They account for a very small section of the market, most people dont take this option. In sub prime lending, prior to a couple years ago, the buyer would take the risk of the market, because sub prime is dependent on a flucuating market. The banks would say to the customers, you take the uncertanity of the loans and we will take your money, but we will offer you some incentives like, low initial rates, and long term price reduction at the beginning of your lease term... buyers would often buy a house that they could not pay off initially, and would plan to take re-finance later... However the housing marketed bursted, and the prices of houses went down... Well when the prices for houses go down, the banks dont want to re-finance your lease (lets say you buy a house for 1 million, the market crashes, your property is worth 500,000, if your on the hook for a mil, the bank isnt going to refinance your lease)...
So with re-financing not being an option any more, people couldnt pay off their mortgages and forclosures began is sky rocket. So sub prime mortgages being like 7% of the country, ended up being about 50% of the foreclosures in the entire country. So who took the burden of the unpaid mortgages? The lenders. The banks however usually pass down the mortgages payments to MBS (mortgage backed securites) which are often backed by a big mortgage company like Fannie Mae or Freddie Mac, who are known as the "secondary mortgage markets)... They basically are the providers of the loans.
These companies suffered. With houses closing at a huge rate, and with mortgages being harder to obtain, companies like Freddie Mac and Fannie Mae, the two biggest mortgage companies basically went down the drain. So the government had to buy them out to ensure that the entire market doesnt collapse and that banks stop giving out mortgages completely.
Everyone heard of the Lehman brothers filing for chapter 11 right? Well, the Lehman brothers were one of the biggest... yup you guessed it, sub prime mortgage lenders. Bear Stearns, another company bought out, was a company that was involved in the securities game, and was affected deeply by the housing market crash.
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With an incrase of food prices, companies and sub companies going out of buisness, as per a recession, unemployment rose. I think it is up to 6% of the country. This is always another burden to a falling economy.
As the Lehman brothers filed 11, and the Bank of America lending to AIG, the government proposed this 700 billion bailout plan we are hearing about. Well, this plan to assist the MBS (Mortgage backed securities, and the secondary mortgage markets, like the companies such as Freddie Mac and Fannie Mae). They believe it will increase liquidty (the ability to sell and buy assests without dropping the overall value) which should bring the lending and sub prime up to pre-crisis levels. People think that the liqudity still exists in the market, so they are debating if this is exists or not, probably congresses job.
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Basically this will all affect you. The market crash affected the biggest companies in the American economy. All sections of the economy are linked, and when you have a major crash in one section, housing, the entire market crashes. Everything gets trickled down to the citizen. This buyouts from the government, are saving the CEO's of the companies from losing everything they have. When the government said I will buy you Freddie Mac and Fannie Mae, they basically said to the CEO's and EXEC's, heres more money you can squander and play with. The CEO's will save their butts and declare chapter 11, before they let it hit their pockets.
Everything increaes. Gas and Oil firstly. Then food. Then wages will decrease. Wages will get the biggest cut, you can expect in a recessiont than your wages might get cut, or your wages will remain the same, as everything from food to oil will increase. The private sector, including colleges will be affected and might raise tution. The CEO's wont be affected as much as you will..
Its basically everyones fault espeically the congress and bush administration. The NUMBER ONE INDICATOR OF ANY RECESSION IN THE INCREASE OF NATURAL RESOURCE PRICES... When bush went into Iraq, when they started investing in Sudanese Oil, when the contractors like Haliburton started posting billion dollar quaters, they were ALL indicators of a recession. Bush didnt do anything. Didnt stablize oil prices probably to pay off his interests (boy hes one rich son of a gun, exxon, chevron and shell all guys who took care of bush's boys, who take care of him), which caused the global market to go into recession, which caused stresses on the banks, which in part led to weakening of banks and lending power in the states, which led to the housing market crash, which led to the crash of americas biggest companies, which led to the recession.
Thanks alot Florida!
The foundation of any slow down or recession (I will use recession as many experts think it will happen), is inflation. Inflation is the basic rising of prices for all goods, and usually indicates a dilution of the value of money. Prices increase, everyone buys less, less power of the currency. Inflation usually starts with dominant natural resources, as a consuming society, we use the natural resources more than we produce them. So, what natural resource are we using? Oil. The rising prices of oil, and not controlling it, led to the inflation of oil. The inflation of oil led to the inflation of food, goods, and plastics, which was devasting for many nations. The global recession is focused around this, the inflation of world food price.
So many factors are leading to the increase of food prices, which kills developing countries, believe it or not, the foundation of a strong global economy. You can always judge a GOOD economy, by evaluating the poorest (not the richest) countries and their economies. As we see in India, biofeul usage, and the conditions for making food all around the world is suffering, and this leading to the increase of price for food. If not the largest problem is the conversion from food to fuel in crop growing. With the demand for oil being huge, decrease importance of fossil feuls, the most powerful nation not abiding by the Kyoto, India and China NOT complying with the kyoto, oil is a huge buisness. Growers of grain are switching from grains for food (increase food supply, more product, more cheaper) to grains for feuls. From the growers point of view, oil prices are not locally set, its a global market. So, the prices in India are competitive for the prices in the US. Well, the US's conditions for growing and soil, is much differenth than those in Africa and India, so there is no sort of regulation as per need.
This the basis for people concerned about developing countries and now the interesting part, the US, and how it connects to the rest of the world....
----
The US's finicial problems consist around two main areas, the housing market, and the declining dollar, which led to problems with major banks.
The housing market, so the housing market crisis goes back a couple of years. Basically, when one buys a house, there are many financing options, including one that is the SUB PRIME option, a more risky transaction. They account for a very small section of the market, most people dont take this option. In sub prime lending, prior to a couple years ago, the buyer would take the risk of the market, because sub prime is dependent on a flucuating market. The banks would say to the customers, you take the uncertanity of the loans and we will take your money, but we will offer you some incentives like, low initial rates, and long term price reduction at the beginning of your lease term... buyers would often buy a house that they could not pay off initially, and would plan to take re-finance later... However the housing marketed bursted, and the prices of houses went down... Well when the prices for houses go down, the banks dont want to re-finance your lease (lets say you buy a house for 1 million, the market crashes, your property is worth 500,000, if your on the hook for a mil, the bank isnt going to refinance your lease)...
So with re-financing not being an option any more, people couldnt pay off their mortgages and forclosures began is sky rocket. So sub prime mortgages being like 7% of the country, ended up being about 50% of the foreclosures in the entire country. So who took the burden of the unpaid mortgages? The lenders. The banks however usually pass down the mortgages payments to MBS (mortgage backed securites) which are often backed by a big mortgage company like Fannie Mae or Freddie Mac, who are known as the "secondary mortgage markets)... They basically are the providers of the loans.
These companies suffered. With houses closing at a huge rate, and with mortgages being harder to obtain, companies like Freddie Mac and Fannie Mae, the two biggest mortgage companies basically went down the drain. So the government had to buy them out to ensure that the entire market doesnt collapse and that banks stop giving out mortgages completely.
Everyone heard of the Lehman brothers filing for chapter 11 right? Well, the Lehman brothers were one of the biggest... yup you guessed it, sub prime mortgage lenders. Bear Stearns, another company bought out, was a company that was involved in the securities game, and was affected deeply by the housing market crash.
-------
With an incrase of food prices, companies and sub companies going out of buisness, as per a recession, unemployment rose. I think it is up to 6% of the country. This is always another burden to a falling economy.
As the Lehman brothers filed 11, and the Bank of America lending to AIG, the government proposed this 700 billion bailout plan we are hearing about. Well, this plan to assist the MBS (Mortgage backed securities, and the secondary mortgage markets, like the companies such as Freddie Mac and Fannie Mae). They believe it will increase liquidty (the ability to sell and buy assests without dropping the overall value) which should bring the lending and sub prime up to pre-crisis levels. People think that the liqudity still exists in the market, so they are debating if this is exists or not, probably congresses job.
--------
Basically this will all affect you. The market crash affected the biggest companies in the American economy. All sections of the economy are linked, and when you have a major crash in one section, housing, the entire market crashes. Everything gets trickled down to the citizen. This buyouts from the government, are saving the CEO's of the companies from losing everything they have. When the government said I will buy you Freddie Mac and Fannie Mae, they basically said to the CEO's and EXEC's, heres more money you can squander and play with. The CEO's will save their butts and declare chapter 11, before they let it hit their pockets.
Everything increaes. Gas and Oil firstly. Then food. Then wages will decrease. Wages will get the biggest cut, you can expect in a recessiont than your wages might get cut, or your wages will remain the same, as everything from food to oil will increase. The private sector, including colleges will be affected and might raise tution. The CEO's wont be affected as much as you will..
Its basically everyones fault espeically the congress and bush administration. The NUMBER ONE INDICATOR OF ANY RECESSION IN THE INCREASE OF NATURAL RESOURCE PRICES... When bush went into Iraq, when they started investing in Sudanese Oil, when the contractors like Haliburton started posting billion dollar quaters, they were ALL indicators of a recession. Bush didnt do anything. Didnt stablize oil prices probably to pay off his interests (boy hes one rich son of a gun, exxon, chevron and shell all guys who took care of bush's boys, who take care of him), which caused the global market to go into recession, which caused stresses on the banks, which in part led to weakening of banks and lending power in the states, which led to the housing market crash, which led to the crash of americas biggest companies, which led to the recession.
Thanks alot Florida!