Credit Crunch? No Problem!
August 7, 2010 by admin · Leave a Comment
We all know there is an economic crisis—the worst recession ever since World War II, but what does it al mean? Should we be hating the bankers and buying cheap houses? Here are four thing you absolutely need to know inorder to survive this tough time.
1. What a recession is.
The definition most used is when a country’s econmoy shrinks for two quarters in a year in a row. By economy we mean the GDP of UK, which is the combined value of everything sold. The UK’s econmy shrunk in the last two quarters of 2008, and in the first quarter of 2009. That makes three. On that basis, we are in a recession. we are not there yet, but we are too close for comfort. Since one mark of a depression is a very high rate of unemployment, we need to prevent that.
2. When it will end.
Though many people expect the recession to end in early 2010, most city experts think that is too optimistic. The best guess of when it will finish is sometime next year, and even then it will take a while for business to recover and start creating jobs. So it is best to hunker down and be cautious for the next 18 months.
3. Why the banks are in so much trouble.
In the summer of 2007, some of the world’s biggest banks, suspecting a number of them might be in trouble, stopped lending to each other. Banks lend to other banks all the time, often for as little as 12 hours or overnight. Those short-term loans and the deposits customers make are the banks’ only source of money. If those dry up, the banks don’t have any to lend to people who want to buy big things, like houses or cars. Then the public don’t buy those big things, which means estate agents and car dealers make less money, which in turn means they don’t buy closthes or go out, which leads to retail staff and pub staff being less well-off and on and on…
4. If the government can stop it.
They are trying. Interest rates have been kept down to encourage spending and get inflation up again, and banks have been instructed to keep lending. But businesses scrabbling to cut costs will lead to a lot more unemployment yet, meaning more people will need benefits. We’ll have to pay more tax to cover that.
