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financial crisis

economy political stuff

maria leon

on 28 April 2011

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Transcript of financial crisis

can america pull back from this devastating disaster??? interview Q: which crisis is most important for us? A: i believe that the financial crisis is our biggest problem. Q: why? financial crisis while we may be running lower on oli and clean water, our current economic state is not stable enough to survive the impact of rising costs associated with oil and water shortages. what are some of the aspects of our economic crisis? first, a real estate collapse. the real estate collapse began when homeowners with adjustable rate mortgages, had their loan interest rates reset to levels the owners could not afford. They stopped paying back their loans so the banks were no longer making money. The banks in turn could not meet their payments to the investment groups that gave them the working money to begin with. The investment groups withheld further funds and demanded repayment of the funds they were owed. Some of the banks and mortgage companies went bankrupt in the process. As the collapse worsened, home owners began to walk away from their homes because they were worth less than the value of the mortgage, banks had to hold onto the vacant properties that were not making money for them, and they began to sell them at deep discounts that made home values drop further.
-- Second, we experienced a credit crunch Third, we experienced an incredible rise in the cost of basic goods, i.e. commodities What are commodities?
-- Commodities are raw goods that we use everyday like corn, wheat, gold, oil, water, etc.; “natural resources” is a good way to think about commodities.
-- It’s important to remember that the entire world is “playing in the same economic sandbox”, all competing for the same resources, and when one country’s economy goes into turmoil, the others are affected as well. It’s just that our economy is so large and powerful that we affect everyone else all the time.
Fourth, we experienced a financial collapse in the financial industry Fifth, we experienced a dramatic rise in unemployment
-- Sixth, we experienced an incredible reduction in interest rates
-- Seventh, we experienced devaluation of the “dollar”
-- Eighth, we experienced a huge increase in the national debt.
What if things don’t change? What could happen?
-- The worst thing that could happen is that our way of life is changed forever and no longer will we be able to consider ourselves the economic powerhouse of the world. The world today operates based on the U.S. Dollar; it is the world’s reserve currency. If the Dollar’s value continues to tumble and if we continue to increase our debt, the rest of the countries around the world will choose to abandon the Dollar as the standard exchange currency. This will virtually make the Dollar worthless and we will see our way of life come to an abrupt end.
Can we change things enough to make a difference?
-- Yes, but we must make significant and permanent changes or else our patchwork today will bring us back to the same problems in 10, 20, or 30 years. The problems then will be magnified multiple times over.
What has to change?
-- We have to get people back to work.
-- We have to tighten banking regulations.
-- We have to stimulate businesses to create more jobs.
-- We have to impose tariffs on foreign goods coming into this country for our marketplace.
-- We have to make drastic cuts in social programs.
-- We have to stop spending more money than we have or take in b y way of revenue through taxes.
-- We have to eliminate our debt as quickly as possible.
KNOWLADGE!! As foreclosures spread, banks could not recover their losses and those institutions that loaned money to them withheld further credit by way of no longer lending funds to the smaller banks. The banks in turn would not loan money they had available for fear of losing it. Businesses that needed the money banks had for new equipment purchases, land acquisition, growth and development, or adding new staff couldn’t get it. Individuals were also in the same situation as businesses. As businesses, institutions, cities, counties, and states couldn’t obtain loans, expenses suddenly had to be trimmed. The largest expense that was trimmed was in the form of personnel. Some businesses could not reduce expenses fast enough and went bankrupt. As people were terminated from their jobs, the unemployment skyrocketed! Some companies began to turn to the federal government looking for monetary help during the crisis. The “bailouts” they received were by way of using taxpayer money and the government borrowing more money from others. These companies did not rehire terminated employees once they received the “bailout” money and further layoffs occurred, which helped push unemployment rates even higher. The unemployment rate went over 9% in April of 2009 and just dropped below 9% two months ago. The problem is that the recent rates are not accurate since many people are no longer looking for work or have run out of their unemployment benefits. These people are shuffled off of the unemployment roster. A more accurate statistic might be the “participation rate”, which is percentage of working-age people working or looking for work. Right now it is 64%; the lowest it has been since 1985. To try and stimulate the economy, the government began lowering the federal funds rate, which is the rate the government charges banks when they receive money from the federal reserve. The current rate is just above 0% at .1%. We have never had rates this low! While this should cause people to want to borrow, many are simply not doing it and the low rates are putting terrible pressure on the value of the Dollar. When the dollar drops in value, goods and services become more expensive. As the costs rise, we have what is known as inflation. Though the government says the rate of inflation is 0, the costs of goods have risen dramatically in the last 12 months so inflation does in fact exist. Inflation causes the Federal Reserve to increase interest rates and this action will force many businesses to raise their prices. It also puts tremendous downward pressure on the value of the Dollar. The government has been borrowing tremendous amounts of money as well as printing loads of money. Printing more money devalues the Dollar and adding to the national debt with more borrowing does the same thing. If the debt continues to increase, fewer countries will view our economy as something worthwhile investing in. With a shrinking tax base, shrinking foreign investments, and the borrowing of more money, the Dollar may lose it place as the exchange currency of the world. THANKS FOR WATCHING! I HOPE YOU LEAVE THIS ROOM( AND WATCHING MY PRESENTATION) MORE ENLIGHTENED. THAT WAS MY GOAL. :D I WOULD ALSO LIKE TO THANK MY FATHER, DR. Steven P. Leon for helping me with this project. i would also like to reconize my godparent dean, who i interviewed. lastly i would like to thank youtube for providing the video.
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