America is under attack! This time it is not terrorists, but America’s best friend, the economy, who are threatening the American dream.
In late July 2007, a phenomenon now referred to as the mortgage crisis caused many people to be unable to make payments on their mortgages. But then the credit crisis followed, caused by massive losses in the banking business. There was simply no money left to invest anywhere.
The credit crisis can be compared with a heart attack. The flow of blood just stopped, thus all the dependent organs cannot work any more. Trapped in this vicious circle, stock markets were completely paralysed.
For a long time, this credit crisis was denied and downplayed. A few scholars voiced the opinion that there was a huge problem arising, but they were not heard. Plus: with the Iraq War, there were more dramatic things going on outside of America that had to be taken care of. Instead of caring for their own internal issues, the U.S. did what its administration has been doing for a long time – distracting from problems inside by taking care of the rest of the world. With all this denial and irresponsibility, I can’t help but be reminded of the way the US administration has been dealing with the issue of global warming.
So as usual, the topic was kept down, yet rose in importance. The biggest mistake was denying it and thinking it could be solved solely “from above” by reducing the interest rate for the first time since 2003 from 5.25% to now 3.5% and less to come next week like Mr. Bernanke of the Federal Reserve announced. The last drop of 0.75% was the largest one-day drop in modern Federal Reserve history.
Okay, so what should happen according to the Federal Reserve? All of a sudden, money should pop up and be free for everyone? No, this would presuppose that banks like the stricken Citibank that have to deal with amortizations of 24.6 billion dollars in the last two quarters of 2007 would join in. But they are busy with keeping their financial statements nice and clean.
Help from the stock markets cannot be expected either. Wallstreet-brokers are more worried in minimizing their losses. Everyone is panicking, thus creating a maelstrom that sucks in every reasonable thought. It is this fear of bad news like an upcoming recession and the lack of being critical about one’s own country
So what is the government planning now? Sending out more tax refunds? This is a simple minded solution to a complex problem. By giving around $600 to everyone, they do not do anything productive. Honestly, who would use that much money to pay their loans? People would rather take whatever they still can get – for instance a plasma TV. Well, this would then help the economy one might think, not considering that they are mainly produced in Asia.
The second problem is: Where should they take the money from if there simply is no money? Create more of a National Deficit which will according to the government in 2008 be around 250 billion dollars? That won’t do. Print new money? This would then increase inflation. Overfeeding the market with additional money is the last thing the U.S. now needs. This would affect every single citizen in everyday life by increasing prices for food and everything necessary.
Scholars like Professor John Boyd of the University of Minnesota, say that for the moment, there is no real effect on everyday life, except for construction or real estate businesses. However, 95% of American citizens have already been financially affected by losing worth on their estates. So if you’re up to buying a house, this is good news. But unfortunately, most people first sell their house before buying one…
So what to do now? A look around the world shows that panic is the wrong reaction. European stock indexes crashed because of panicking in the U.S., but recovered after the emergency interest rate cut. This effect lasted not even 24 hours. Everyone is scared now, including customers – a dangerous momentum could potentially hurt the Western economy. No, the best thing to do is to stay calm and confident. Catch your breath and have patience – we are dealing with global problem that simply cannot be solved by pulling one trigger.
We have to realize: saving the economy now is the duty of all citizens. If pressure builds up on the U.S. citizens, they will most likely react in a panic way as well, thus dragging us not out but in a recession. It is the American tendency to overreact to news of an upcoming recession and the lack of forward thinking combined with the inability to be critical about the reality of one’s own country. All this drove the U.S. into this mess and the whole western world with it. Acceptance is the first step.