The global financial crisis that we are all facing may be signaling the biblical prophecy of the beginning of the decline of the American empire, which has been the pioneering bedrock of modern entrepreneurs dream. The value of houses will soon be halved, leaving many families facing negative equity and foreclosure.
There will be less credit available to the economy, and it will be dramatically hard for corporate company to borrow than before the credit crunch started to sink in. This is the worse financial crisis since the ending of the First World War, and it will have far reaching consequences.
We have seen the substantial amount of wealth lost as a result of bad management, downgrading the value of housing property by approximately 30 per cent so far, it will come down more yet, the collapse sends a strong long term message to capital management, ending speculation of profitable revival, to all good intense and purpose, the housing market bubble has burst.
In the 1929 great depression, the cause was down to policy error made by the central bank, allowing the money supply to shrink, however in today's market, Fed is taking a more prompt and aggressive attitude towards salvaging something, by the action pump liquidity into the system. Will this save us from the apparent wrath of God to come? I am not sure low interest rates, market stimulation; share speculation is the answer to society's problems.
Other economists suggest some ways of revitalizing our position on the global economy, with interesting solution offering the access debt ridden society, to recover the market share values and bring about some kind of stimulation, the market clearly needs leverage to see the shrinking financial sector recover, but banks have to take the lions share of the blame, because they have undoubtedly, over the past few years acted irresponsibly.
We are in this mess because the banks and lending institution have encouraged excessive behavior with no accountability, every one wanted to profit and have a life of luxury without paying the real price, the boom of house value has drastically declined, stemming from Fed low policy rates, and many people hold to the idea that the quicker the overprice house falls back to common affordability, then the sooner the market will recover.
Economically this will be the worst US recession in decades, which affects not just sub prime mortgage crisis, but is possibly a prime breakdown in the complete financial system that we have come to trust, which has not been regulated and properly, and the eventual outcome will imply greater credit losses, possibly up to $2bn.
While the credit crunch swaps different markets, nominal protection is sitting on top of outstanding stock of paltry $6 trillion bonds. The counter part will inevitably lead to a systematic breakdown, where hundreds of banks and lending institution with large exposure real estate will go into liquidation and cease to operate. Federal deposit Insurance Corporation sooner or later will run out of cash, this is the beginning of recession and the end of easy money.
Equity share prices will fall alarmingly 50 per cent relative to their peak, we are not yet feeling the full impact of the global meltdown, but all the global economies are entering the conscious mode of recession, signaling the beginning of the end.
