Our Economic Crisis – What Next?

February 22, 2009

If you ask five experts how long this financial crisis will last, you will receive five different answers.

Every day, the volatility of the stock market makes it virtually impossible to ascertain the length of this economic downturn. There are no easy answers, just speculation. Economists give answers like these:

18 months at the most. This is dependent upon the stabilization of the credit market.

2 years at most. Given the infusing of capital into the banks, they will be able to lend to other banks and allow for businesses and individuals to apply for loans once again.

5 years. According to economists Stijn Claessens, M. Ayhan Kose, and Marcio E. Terrones, “The episodes of credit crunches and housing busts are often long and deep. For example, a credit crunch episode typically lasts two and a half years and is associated with nearly a 20 percent decline in real credit. A housing bust tends to last even longer: four and a half years with a 30 percent fall in real house prices. And an equity price bust lasts some 10 quarters and when it is over, the real value of equities has dropped to half.”

In a hearing on Capitol Hill on October 23, 2008, former Fed Chairman Alan Greenspan said, “this is a once-in-a-lifetime economic tsunami.”

One could proffer that the sub-prime mortgage crisis was clearly evident in 2006 when over 100,000 homes were already in foreclosure. Could this economic collapse been avoided? Clearly, the answer is yes.

While CEOs of major brokerage houses were raking in millions of dollars by manipulating the stock market, the prices of stocks were soaring beyond their realistic value.

Predatory lenders were making a virtual killing by selling homes to individuals who either could not afford to buy or who had bad credit ratings.

So what does this mean for all of us – stay the course – read my article on Important Money Decisions to help guide you through this crisis.

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