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FDIC may “have to” borrow from the Fed to stay afloat

Aug 27, 2008 Investment Opinions

I remember reading uk financial services took over as the leading economic sector in the last 5 years, just a sin America. In the west financial services which are often hyper inflated and based on money pushing money, investing or rather gambling on very high risk multi tier so called investments and consolidated debt products, encouraging borrowing and debt, which has now had the tap turned off so much so people rely on debt to spend spend spend, but reality is they may have to save before spend, but all their debt means they can’t save, it’s a vicious circle and suddenly as financials collapse what have we left now manufacturing has been diminished. Other countries printing masses of money, e.g. Argentina in the 1970s, typically hit hyperinflation and very extreme belt tightening, massive job loses and an erosion of incomes for this in jobs, with many companies even cutting wages and many skilled and qualified workers having to do low paid unskilled jobs. This can go on for years and is what make s a recession long and painful, until the economy picks up. However the financial meltdown has shorted the system as it did in 1929 and this risks a full scale depression.

I’m not just talking about America here, I’m also talking about UK, Europe and it won’t stop there. the brakes could well be put on China although their culture at least isn’t debt led and the people are used to having a save before you buy philosophy, which will help them cope better. The worst off will be people relying most on debt and borrowing. India though may also be hard hit although again their people are used to coping with poverty and again many haven’t become accustomed to managing on debt, although the new up and coming young people in India’s expanding economy may also have fallen into the same debt trap. Then current political problems Russia could well be even more hit by failing world economy at a time when tensions are being retched up. It’s likely there will be no winners amongst ordinary citizens of either America or Russia if there is another cold war.
Hopefully also the very countries that want to spoil things for the world, extremists and terrorists, won’t try to take advantage of what they as weakness in the west and even Russia for that matter when is economy too may collapse as it did before the end of the last cold war.

Things like being able to say anyone does shopping for a hobby and simply using credit cards to buy things, could well come to an end for most people except the rich who will still have surplus wealth even if their wealth is also reduced, its the surplus wealth element that is the key so the poor will be hardest hit, often having no disposable income left after things like buying food, keeping warm and keeping a roof above their heads. You’ll have quiet shopping malls and people working in them being laid off, mass unemployment and an increased government cost for social security and a lowering of tax revenues.

If we do have a real full blown and I’d say worldwide depression, at least America won’t be on its own in this, but will be affected of course, some countries may be less and others more affected, but nevertheless all will be affected and world trade will suffer as a consequence and business models will be affected. You’ll find many companies’ current valuations will be way off the mark and will have to be recalculated in view of a contracting world economy and this means that projections going forward and current company valuations may in many cases be way too high, this could have a severe downward affect on world stock markets. To get an idea of what a real depression is like you need to read history books, watch history videos or talk to people that were here during the Great Depression. This could be the beginning of a Second Great Depression.

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Technorati Tags: Argentina In The 1970s, Brakes, Collapse, Debt Products, Debt Trap, Economic Sector, Erosion, Fdic, Financial Meltdown, Hyperinflation, Incomes, Massive Job, Money Investing, Reading Uk, Recession, Tensions, Uk Europe, Vicious Circle, Wages, World Economy

Tags: Argentina In The 1970s, Brakes, Collapse, Debt Products, Debt Trap, Economic Sector, Erosion, Fdic, Financial Meltdown, Hyperinflation, Incomes, Massive Job, Money Investing, Reading Uk, Recession, Tensions, Uk Europe, Vicious Circle, Wages, World Economy