Financial Crisis Explained
First of all we must establish a parallel between the current economic crisis that is occurring globally and the one that happened in the 1930’s. The main cause for the 30’s was a massive increase of gold in the global markets; where as the current situation is promulgated by a bad policy implementation over the past 2 decades: easily accessible credit.
The principle of the current situation resides mainly within high risk mortgages made to already financially unsound people, promising said people very alluring interest rates to make them obligated and indebted to the financial institutions. Many chose to invest in property purchasing, purchase considered to be promising long term. A lot of people were tragically made insolvent because they were unaware that the mortgage contracted was using a variable interest rate model signifying that the payments had an unstable rate making it quite difficult, near impossible even to include in the average lower middle-class American’s budget. Financial institutions showed naiveté by buying credit based upon owed capital. The problem coming from the fact that they also are indebted since the money used to purchase or being credited being fictitious because the client or consumer had not yet paid said mortgage. Increases in cost of basic materials such as petroleum or agricultural products pushed the average person harder and harder towards total financial insolvency, which brings us back to the fact that banks who were basing their credit repayment on re-payment of loans and mortgages where forced into bankruptcy due to inability to repay more than an infinitesimal portion of their debt to their investors and creditors. This polemic has had a domino effect on the financial world all over the planet even though the origin of the problem was the United States. Investors touched by this recession are situated all around the world, the United States being an economic super-power and having such issues renders the global markets equilibrium very unstable at the moment. It is only with time and sound financial restructuring of the markets that the stocks, bonds, commodities and money values will once again start showing signs of growth and stability, so we must show marked patience and change our consumption habits to help avoid such a fiasco from occurring again. Credit being a highly practical means in emergency or high cost purchasing we must seriously consider that it is still credit and as such must be repaid no matter the situation.
