Collapsing economy?

The events of today affecting the global economy will be well known to you all. What I would like to say is this: the world we wake up to tomorrow will be changed utterly. These are not the end times; we will dig ourselves out of this hole. However, the road out is going to be long and very steep for many. Some predictions:

1) With government ownership of much of the economy, we will have regulation up the wazoo. As one Repug congresscritter (paraphrased) said, “Joe SixPack isn’t going to stand for bailing out Wall Street”. The only way this is going to fly is through increased regulation of the banking and financial industry. This will dwarf Sarbanes-Oxley in its reach into the financial markets. Measuring, hedging, and containing risk will be a sought-after talent and well-compensated. Buying and selling securities will be low on the totem pole.

2) Our families and ourselves are going to suffer. Buy-to-let mortgagors will be wiped. Rates will go up, and as people sit tight, not wanting to move, rental prospects will dry up in the short term. Mortgages granted this month are down 98% on last year here in the United Kingdom! Amazing! See #3 for what will happen when the mortgages are finally sold by the governments.

Those who work in the financial area will be hard-hit. Layoffs and postponement of all but absolutely essential projects will mean joblessness for millions. We’ll see people selling their possessions on the street in order to make ends meet. Bankruptcies will go up, and the new laws that limit the banks’ exposure to personal bankruptcies will bite the ordinary consumer who borrowed prudently but, through no fault of his/her own, has lost his or her job.

Oh, don’t try applying for a credit card anytime soon. If you do, and you get one, don’t borrow on it. I feel like cutting mine up right now (we don’t carry a balance, thank goodness).

Those in the best position will be those who have money in the bank (deposits, I think, will generally be safe), who have little or no money borrowed, and who have little or no money in the stock market (at least in the short term).

3) When we come out of all this, in about 10 years, the financial markets will look very very different. Risk aversion will be the order of the decade. Only those who do not need money will be able to take out loans. The government will package up what is left of the mortgage d

6 Responses to “Collapsing economy?”

  1. lzhaol says:
  2. spwebdesign says:

    Why is tomorrow any different from today?

  3. chrishansenhome says:

    The Far Eastern markets will have opened.

  4. lzhaol says:

    not trying to sound racist but Asians generally does keep 20-25% of their income in the bank… probably we won’t be hit tt bad as compare to the Americans? i think they need to get their feet on the ground… start producing..start saving! and not trying to count on some 700 billion bailout when they don’t have any $$ to begin with in the first place… glad tt the bailout was rejected… can you imagine US dollar becoming banana notes??

  5. jsangye says:

    Hmmm…..I will love to relook at this post 1 year later.

  6. chrishansenhome says:

    I think it’s a bit more complex than that. It is true that Americans should save more, and they do not approach the savings rate of Asians. That savings rate didn’t spare Asia during the meltdown following the Thai economic crisis a while back. The effect is less on individuals there as they often have high amounts of savings. However, the macroeconomy still had problems.

    The government has lots more money than $700 billion. The consequences of wholesale banking and credit failure will reverberate around the world. Temasek has lots of money in Western bank stocks, which will be worthless. That is your money!

    So even Asia has a stake in keeping Western banks solvent and their stocks valuable.