Serious Discussions  »   USA ECONOMY Crisis

The current economic crisis is not just in the USA, it's global, though it's worse in the USA since there was more to lose.
It's thought mostly to be the result mainly of bankers sloshing money around in ways that are either incompetent or possibly corrupt. (In effect, using funds intended for investment in productive companies for big-bucks gambling)
It's cyclic, this happens approximately every 20-30 years, it's not over but there is a gradual improvement.
In about 10 years there will be another 'boom' time and everything will get ridiculously over valued again.
Then a new generation of bankers will do exactly the same thing again.

Something about CEO's and the banks loaning money that wasn't supposed to be loned I think.

Think about it this way:

Theres a horse race competition, with various competitors (Blue, Red, Yellow etc...)

Now of course people can bet on those horses and win money: For example, they bet $100 on the blue horse and get $150 back if the blue horse wins, with a 50% profit. These betters can of course borrow money from lenders to increase their profit by betting on borrowed money. The returns on this can be huge, as the better is making a profit on money thats not his, and then paying it back, but he also has the risk to lose a lot, if the horse he bets on loses.

To add flavor to this, imagine you can have a risk taker, whos gonna take responsibility for the better's losses if his horse doesnt win. Example: the better bets on the new horse, and wants to protect his bet by paying say $10 to the risk taker. If the horse wins, the better wins money, if he loses, the risk taker pays for the losses of the better.

Now imagine that betters can borrow much much more money than they should(say they have $1,000 of assets, and are allowed to borrow $50,000, what if they lose it all, where are they going to get the money to pay back the lender?

So how does this analogy fit in with the crisis we are facing right now?

Well here it is:

-The betters are the investment banks(Lehman Bros, Bear Stearns, Citigroup etc..)
-The bet itself is called a Mortgage-backed Security.
-The blue horse(That everyone bet on) is the housing market.
-The risk taker is AIG, and other insurance / Credit default swap issuers
-The lenders are various banks and financial institutions.

What happens when the blue horse(housing market) loses? Well, the risk taker has to pay much more than it has in reserves to those betters. The betters bet with much more money than they could afford to lose and are broke, and the lenders now trust no ones.

I probably left out a few details but thats the gist of it.

I don't think the crisis is over tbh, the main causes of the problem have not been fixed just yet, and the Dow may be at 10k, but thats imo unexplicable euphoria that does not justify the levels. Unemployment is still high, and trade worldwide has slowed significantly.

As others have said, in the next 5 years we'll have a new 'boom' and after that a new crisis... thats just how it works i guess 

 

The people above have answered the question very well. I also have to add that even though people worry that although the US is billions of dollars in debt, we still have hope. Many countries will not let the US fall, we are too important to the rest of them. China exports a good portion of its good to us, if we fall they fall. It's a very thin yet strong rope, I guess

it's actually trillions of dollars in debt, just thought i would say that 

 

Bottom line, there ~censored~. And I'm glad UK and USA are, ~censored~ credit card idiots.

It's not just the US or the UK, it's a global "crisis". If we can't afford to import goods from other nations like China, Japan, India, or whatever, then they lose serious money from exports, causing them to fall into an economic downfall as well. It's a chain reaction, if we're "~censored~", then the rest of the world is pretty much "~censored~" as well.