A Guide to Understanding the Current Economic Crisis
With the ongoing uncertainties of when the global and regional economies will pull out of this deep recession, I think it’s important that all consumers understand what exactly led to this situation rather than simply relying on economic forecasters and politicians for their stance on the matter, which seems to change on an almost weekly basis.
To that end, I want to share this video created by Jonathan Jarvis called “The Crisis of Credit Visualized” as it does an excellent job of breaking down this complex issue and presenting it in a fashion that is easy for everyone to follow. Thanks to Jarvis’ video, viewers will not only have a better foothold on what exactly caused the current financial meltdown, but they’ll also be able to better evaluate whether the measures our respective governments are putting into action will resolve this economic downturn, if not why new regulatory measures need to be implemented to ensure such a situation doesn’t arise again.
You can learn more about Jonathan Jarvis’ project at this website – “The Crisis of Credit Visualized“. My thanks to Jonathan Jarvis for putting together this informative, educational work on the origins of our current economic situation.
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Thanks for the information on Jonathan Jarvis’. I have been reading “The 21st Century Economy—A Beginner’s Guide” by Randy Charles Epping and now feel like I am starting to understand the whole economy a lot better- the book provides me with the tools for me to make my own decisions. This is something that I feel everyone needs to become familiar with in order for things to get turned around- the people of this great nation are the ones that are going to make the difference and turn things around.
You're welcome, Becky and thank you for drawing attention to Randy Epping's book on this same issue. The present financial situation is one that affects all of us – either in the short-term due to loss of employment or reduced wages, or in the long-term because of losses in investments we've made to ensure a sustainable income for when we retire. As such, there is a vested interest for all of us to become better informed and equipped in understanding how decisions being made by our political leaders will ultimately affect us outside of whatever spin they elect to put on it.
Again, thanks for sharing this other valuable resource for fellow consumers to help educate themselves about the current economic crisis.
Hello
This helped me out immensely in understanding the global crisis. I was just wandering, how did this lead on and affect other countries? I am not sure I quite grasp how the credit crisis lead to a global economic crisis when it was only America?
Hi Allen,
The reason why this is having a global impact is because the US banks borrowed money from European, Chinese and other non-US financial centres to fund their acquisition and packaging of sub-prime mortgages into mutual funds and also because the investors who ended up buying these mutual funds were not just in the US, but in various economic markets.
When the US banks started losing their capital because people were defaulting on their mortgages, they started to lose the means to pay back these loans and cash flows started to stop. When the foreign banks didn’t get their money back, they too had to restrict their cash flows. This means it became harder for companies to purchase new equipment or hire more workers to build more products, and individual consumers not being able to get loans to purchase items like new furniture from retailers. With people and companies buying less, companies not directly involved started losing money and, well, I think you can see the downward spiral effect.
That’s what I would call the short answer to your question. To learn more about this, read the entry on Wikipedia on the current economic crisis (a bit technical at times, but still quite informative) as well as this humourous, but sharply attuned interview sketch by John Bird and John Fortune where they discuss the whole sub-prime mortgage/mutual funds fiasco. Their skit will really help you appreciate how this situation spread out from the US to other markets.
Hope this answers your question and I’m glad you have a better understanding of the current economic situation.