Posts tagged ‘credit crisis’

Global pandemic of unrest

The Economic Intelligence Unit (pointy-headed UK analysts) recently released a report entitled Manning the Barricades, which warns of serious social unrest over the next two years as a result of the global financial crisis. It’s their third report since the credit crisis began in August 2007 and focuses on the political fallout. The report includes a social unrest index that identifies where the risks are greatest (rush to this index to check out where your country rates amongst the 165 countries listed).

Here’s some tidbits:

  • 50 million people globally will be tossed out of work
  • rising unemployment, falling house prices, pension funds nearing bankruptcy and personal wealth declining could topple Governments – high-risk countries being Zimbabwe, Chad, the Democratic Republic of Congo, Cambodia, Sudan, Ukraine, Moldova and Bosnia-Herzegovina.
  • political turmoil from the global recession is replacing terrorism
  • an economic collapse in eastern Europe could tear apart the European Union and create a new Iron Curtain

Don’t read it if you’re already depressed from the global financial hissy fit!

April 20, 2009 at 2:00 am Leave a comment

Credit crisis visualised

Whilst trying to come to grips with the global financial crisis, I’ve been reading and researching. Came across this YouTube video, which explains how the credit crisis happened but what’s particularly interesting is that the videos were put together by a Media Design student, Jonathan Jarvis, as part of a thesis project. He wanted to explore the use of new media to make sense of an increasingly complex world.

So he uses animated figures and images to explain in simple, visual terms what the heck happened. Here are the videos for your viewing pleasure (Parts 1 and 2).

April 6, 2009 at 2:00 am 2 comments

The party could be over

I’ve said before that my parents were pretty thrifty. My mother was a great recycler. I remember one year, she gave me my birthday present ensconced in the wrapping paper I had used the previous year to wrap her gift! We had a good laugh. My father always said “if you can’t afford it, tough, go without” or “put it on lay-by”. So I grew up not having some things that other kids had; I did household chores to earn my pocket money (grand sum of $2.00 a week); I have always saved 10% or more of my salary. But like the rest of us in this rampant consumerist society, I’ve come to expect the “good life”.

I’ve been lucky to earn good money in my career and there was a time when “The Brands” were important to me. But the last couple of years – really since starting the ThinkingShift blog and researching into climate change, poverty issues and so on – I’ve returned to being frugal, although I admit it’s a struggle sometimes. Goods are not made to last. We are encouraged to throw away stuff and just go out and buy more. It’s an easy mindset to succumb to.

Our capitalist society has urged us to take on that huge mortgage so we can live happily ever after in our very own McMansion. I was chatting with a work colleague the other day who told me he has mortgage debts amounting to $AU 2.6 million. Granted he has two homes but a multi-million dollar debt strung around my neck would keep me wide awake at night, don’t know about you.

So we’ve all been partying away on other people’s money and whipping out the credit cards to buy the luxury brands or over-extending ourselves taking out that mortgage. Seems the party could be over and we just might have to return to the day when we all lived within our budget.

That grand old dame, the United States, is looking a little shaky right now and preparing for a visitor that a superpower might just not want to receive – the International Monetary Fund. The IMF are whizzing into Washington to conduct a stability assessment. They are not mistaking the US for Haiti or Pakistan. Nope, they are zooming in on an economy teetering on The Edge.  I am using capitals for The Edge because my mother always referred to any financial doom and gloom as possibly teetering on The Edge. She would then whisper the dreaded D word – Depression. She lived through The Depression, hence her frugality. So I’ve always had in the back of my mind: would I one day live through a depression or severe recession?

Seems we might all be wondering that now. I’m no economist but let’s have a look at what’s going on. What I think is really interesting (putting aside the collapse of major financial institutions) is the new role of the US Government wading into a space occupied by (let’s be honest) greedy bankers and a financial industry largely left alone to party it up and make obscene profits. It’s ending up as a quasi-nationalisation of the financial economy (not the real economy as that is growing quite well at 3.3% in the last quarter) with compulsory mergers or a Government takeover as in the case of AIG (with the Government having an 80% ownership stake).  Apparently, the Feds bailing out the likes of Fannie Mae, Freddie Mac and AIG is costing $US 700 billion (£382bn) with the total cost estimated to be more like $US1 trillion (£545bn). Add to this the cost of slugging it out in Iraq – $550 billion or $3 trillion if you ask Joseph Stiglitz.

And who will paying these staggering costs?  Mum and Dad US taxpayer of course. Bush has admitted that the bailing out exercise means putting “… a significant amount of taxpayer dollars on the line”. But he added: “I’m convinced that this bold approach will cost American families far less than the alternative. Further stress on our financial markets would cause massive job losses, devastate retirement accounts, further erode housing values, and dry up new loans for homes, cars and college tuitions”.

Well you know, possibly if Bush and his cronies had a strategy to begin with, we might not be facing this meltdown. Bailing out Fannie Mae and Freddie Mac but not bailing out Lehman Brothers, then bailing out AIG gives the impression they are on the back foot, desperately trying to figure out who to save and who to throw overboard. But possibly Lehman was different as they were the only one facing bankruptcy. I don’t think we can sling it totally at Bush though because what he has done is very faithfully execute the modern  Republican agenda, which is less regulation, less taxes and pro-corporate policies. Perhaps we need to trace this back to the Reagan Administration and his dismantling of what was left of the New Deal.

As Wall Street finds itself nationalised one firm at a time, leading thinkers are pondering where the credit crunch mess will lead to next – this I find very interesting, particularly from a lessons learnt POV. One leading thinker has this to say:

“The current crisis in consumer capitalism – which has precipitated a mortgage crisis, a housing crisis, a spending crisis and a savings crisis in the United States and the West – has many causes. But consumers themselves bear major responsibility for these multiple crises. Where once capitalism produced goods to meet real human needs, today it manufactures needs to sell all the goods it produces. With billions spent on marketing, consumers are easy marks. “Shopaholics” head for the mall with no goal in mind except to buy something, whatever.”

Yep, whilst we’re busy blaming banks for excessive lending decisions or the US Government for not boldly regulating the behaviour of financial institutions, we should take stock of our own role in this mess. The “I Want it Now” society sees us demanding iPhones, McMansions, designer handbags that are the GDP of a small country, gas guzzling cars and so on. The rampant consumer spending and borrowing was simply unsustainable. But if the pointy headed economic gurus didn’t see this coming, then I’m not sure that Average Consumer could have either and eased up their spending. And so now we face an uncertain economic future with the dreaded D word being more than whispered. I think that politicians have to be extremely careful right now: send messages of confidence and hope, and not mention the D word. Because what happened on Black Tuesday in 1929 could just as easily happen now – a rush on the financial institutions with people withdrawing money and investments.

Don’t know about you but I am following the ThinkingShift tips to surviving economic doom and gloom because the party is probably over and we’ll all have to learn to live within our means. And since I’m in a dark phase let me say: the new role of Government in taking over financial institutions is one step closer to the doom of the United States. The freedoms and civil liberties Americans espoused and once enjoyed have been eroded, happiness has gone down the tubes with mortgage foreclosures, the IMF will no doubt trim things such as social-service programmes. So in the name of resurrecting capitalism, at the other end, we will see America no longer the superpower it was. And let’s remember that profound economic crises have led to fascism or socialism.

Hopefully, I’ll be in a better frame of mind for the next post.

September 21, 2008 at 6:15 am 1 comment

Day of reckoning is near

About two years ago, I gave up using credit cards. I’d had enough of a certain credit card company charging you a “liquidated damages” fee if you were late in paying – can you imagine the nerve of charging liquidated damages? I sent them a heated letter reminding them that only lawyers used that phrase and couldn’t they be more customer-friendly in their language? I received some automated twaffle in reply and promptly ripped said credit card to bits during a major hissy fit. Then I danced around the shredded up plastic bits! The mere mention of this credit card company’s name tends to send me into a melt down.

But aside from being in a rage about this, I was thinking even two years ago that we were all having a massive party on credit cards and that sooner or later the party would be over. It’s very easy to whip out the plastic and utter those heady words “charge it”. We tend to think (or at least I did) that it’s someone else’s money or that yeah, can’t really afford it now but I’ll find a way to pay it back. When I first signed up for a credit card in the 1980s my father wasn’t amused. He never had one. Came from the days when credit just wasn’t around and you worked hard to pay for what you wanted. Lay-buys were in. Instant gratification wasn’t known.

So…two years ago, I decided to chop up the plastic and follow the mantra of “if you haven’t got the cash, tough, you can’t buy it”. I don’t have a credit card debt. When I receive those annoying letters from banks saying “congratulations you can have a $25,000 credit limit” (and I didn’t even apply for it), I rip the letters to shreds.

So it’s not really surprising to read that following the subprime mortgage fiasco, credit card debt is the next bubble to explode all over us. What really freaked me out is reading that a credit card meltdown could bring down the world’s financial system. Hello….depression? My grandparents always used to tell me stories of their life during the Great Depression – eating bread with dripping, having a swagman or two visit them asking if they had any work. The spectre of a Depression has always haunted me because of my grandparents’ nightmarish bedtime stories!

Obama has been warning about the siren call of credit cards for some time and introduced the Credit Card Safety Star Act of 2007. Due to subprime losses, in the US, people are using their high-interest credit cards to pay part of their mortgage repayments. Total Australian credit card debt grew in February 2008 from $39.5 billion to $43.25 billion and the average interest rate jumped from 17.6% to 19.4%. So apparently Australians are paying AU$500 million in interest on all the consumer goods we’ve bought.

Now, I’m no economist but seems to me we’re on the brink of a mega-collapse somewhere in the not too distant future. If I were an economist, I could wager a few bets as to when a world wide credit-card collapse might happen and be well-prepared to tough it out. After the collapse, we seem to have been encouraged to think of houses as giant ATM machines, extracting money from home equity and expecting the house to rake in the profits in a housing boom. But now we’re seeing a contraction of the property/housing market.

The US has been partying on China’s money for ages and I don’t think the US Government has been using that money to provide better health care. Nope. I reckon they’ve been using it to finance the Iraq War. And if the predictions that China’s economic growth might slow are true, then the US is in for a bit of a surprise.

I’ve been thinking too how countries like the US and Australia have become so service-oriented that we are lacking expertise in manufacturing of quality goods because we’ve outsourced to China. Australia could once rely I guess on tourism as a service industry but now that airlines are trying to pass on to us the price of rising fuel costs, our tourist industry is beginning to do it tough and the Japanese are deserting us.

With so much credit swirling round and people mortgaged and debt-laden up to the ears, we are bound to increasingly hear things like this – the largest municipal county in Alabama US, Jefferson County, is considering filing for Chapter 9 bankruptcy . The county is in a US$3.2 billion mess created by the credit crisis (and some corruption along the way it seems). So when a county (or State) goes belly up, its citizens suffer: layoffs occur, pension payments are threatened, libraries shut doors, infrastructure decays and so on.

So I am seriously thinking of how to prepare for the upcoming doom and gloom and how to survive it. What follows is no financial or legal advice, it’s just what I am going to be focusing on to prepare for a bleak future:

1. Own everything you can – home and car. Make every effort to pay out that mortgage or reduce it as best you can. Don’t own some flash car just because you want to look cool.

2. Pay off and cut up those credit cards – when you’ve paid them off, cut up the plastic and dance around all the bits and pieces. Trust me: it’s SO satisfying. Don’t be seduced by easy money because it will eventually bite you in the butt.

3. Avoid THE BRANDS. You can look good wearing recycled stuff. Going to St Vinnies doesn’t mean you’re down or out. I trotted out my recycled winter coat last week (from the 1940s and oh so cheap, but oh so warm and well-made). I’ve never had so many compliments! People actually want to touch and pat it (no it’s not fur, it’s luscious velvet). Don’t waste your money on Brand-name stuff. I’m even paring down my lipgloss collection!

4. Start making your own bread and buy in bulk. We make bread from spelt (which we buy in bulk) and we make up our own muesli and keep it in a huge container in the refrigerator. We grow whatever herbs we can to spice up our food. We buy lentils and rice in bulk.

5. Check out the supermarket specials. I haven’t used the Government’s new website, GroceryChoice yet, which helps you to compare supermarket items but plan to. But I only shop every other week (to avoid any temptations) and I compare prices. Use any coupons you can, like fuel discount coupons.

6. Live off-the-grid as best you can. Invest in solar power. We have installed photovoltaics and a water tank. We are currently looking for land that will have its own water source and where we can grow vegetables and fruit.

7. Follow my father’s advice: if you can’t afford it, tough, you can’t have it. Save at least 10% of your salary. Don’t put your money in one bank (I think this is a hangover from the Depression and the fear that a bank would collapse, but hey, I’m following this advice!).

8. Look after your health. Good health really is your greatest asset. When the collapse comes, don’t for one moment think the Government will be there to help you in your hour of need when it comes to health. They’ll be bankrupt. So exercise and eat well (as best you can when food is toxic with preservatives and colourings). Check out your local area to see if there’s an organic fruit and vege shop. Don’t smoke, don’t drink (I’m sure by this stage you think I’m some Bible thumping goose but really, be honest, tobacco and alcohol can be addictive substances that impact on health). Stay off the wacky tobaccy and other substances that cause you to think you’re Jesus! You’ll need to have your wits about you to cope with the coming dramas.

9. Learn how to make and repair things. I noticed in Portugal and Italy how they have a lot of shops that specialise in things like shoe repair, tailoring and so on. They seem to recycle and repair things more than we do in Australia. Now, if my husband’s socks sprout a hole, I’m darning them rather than tossing out. I’m wearing clothes from three or four years ago rather than rushing out and buying the latest trend look. If I want a new pair of earrings or necklace, I make it. I’ve trotted out some of my mother’s stuff to wear.

10. There should be a tenth item to make up the obligatory Top 10 list – but can’t think of anything! So if you can add to this list, leave a comment.

August 16, 2008 at 3:17 am Leave a comment

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