Financial Crisis
Well, what a year it’s been…
High street banks in crisis, investment banks closing their doors, ‘experts’ pointing fingers, and SERIOUS questions asked of the Financial regulators. Yes, what WERE the regulators doing on both sides of the Atlantic? The Financial Crisis is real and has touched almost everyone.
Financial Crisis Today Vs !970s
And to cap it all, a $50bn (expected) fraud uncovered in the US.
Is there more to come, one wonders?
No one knows the answer to this, but it may be of use to look back in history so we can observe the lessons then.
With reference to the stock market, perhaps the most relevant comparison can be made with the market of ’73-75 and the Financial Crisis that hit during that period.
Many high street banks suffered then as well. In fact, there were rumours that Natwest and Midland were on the verge of collapse. This Financial Crisis has hit banks of all sizes.
Let’s look at some other factors:
Here are facts based on the Financial Crisis from the 1970s. The index of the time, the FT30, fell by over 70%, this time around the FTSE 100 has fallen 43% (year ending October ’08) interest rates are now 2%, whereas in ’73-74 they were 15% consumer price inflation now stands at 4.5%, but it was 20% then! the risk in ’73 was stagflation, it’s now deflation the peak of the FTSE 100 was 6,730, so would have to fall to 2,019 to compare with the fall in the ’70s We know from history that when markets recover, they can recover fast. In fact many investors will be hoping that the recovery from the Financial Crisisof the ’70s will repeat itself.
On January 6, 1975 the FT30 closed at 146 (the lowest point). Within 8 days it had risen to 176 (20% increase), and after 18 days to stood at 252 (72% increase). By the end of 1975, it had increased by more than 150%!
Of course, there’s no knowing what will happen during this Financial Crisis.
So what action can you take with any funds you have invested in shares, whether directly or via investment funds?
Here’s some quick pointers to help you weather this Financial Crisis:
1. If your money is invested directly in individual shares, you may want to consider spreading the risk and re-investing into a mutual fund(s). Check the tax position before you take any action.
2. If you are investing into mutual funds, check how much risk you are taking as the risk profile of the fund may have altered since you invested.
3. Look at your overall asset allocation. This is the split between growth assets (shares) and income assets (bonds). Do you have too much exposure to equities?
4. How much risk do you need to take to accomplish your goals? (have you even thought about this?)
5. Scrutinise the charges you are paying on your funds. Can these be reduced? You could consider tracker funds and passive funds as these are normally cheaper.
The Financial Tips Bottom Line
As we’ve seen during previous recessions and periods of Financial Crisis and the economy WILL recover. Hopefully we’ll see a more realistic financial marketplace where obtaining credit will be harder, especially for those who shouldn’t have qualified in the past.
ACTION POINT
As listed above, now is the time to be proactive and take positive action with your investments. Don’t make the mistake of thinking that many funds are the same, as it could cost you thousands of pounds over the long term.
Ray Prince
http://www.articlesbase.com/finance-articles/1970s-crisis-is-it-the-same-this-time-715181.html
Did oil prices cause current crisis?
Here is my theory.
The economic crisis we are currently in is the result of us reacting to high gas prices differently than we had before.
In the past oil prices went up we did nothing different. Sure we thought about better gas mileage. But from 1970s to 2000s cars got about twenty MPG and we continued to increase the miles we drove so the usage goes up regardless of the cost. In fact we even buy Hummers and SUV that proved that we did not care about the cost of oil/gasoline.
In the mean time people are buying bigger houses than they can afford but this would have continued to work as long as the value, on paper, of these house continued to raise.
So all of a sudden the "experts" allow the cost of oil and more particularly gasoline to reach and exceed $4 per gallon. Now people changed behavior.
Now people decided to drive less.
Companies cut back because of the high cost of gasoline. Jobs get harder to find and keep.
People decide us less fuel for the first time.
So watch this. In 1970 the min wage was about $1 and a gallon of gas was about 32 cents. So it took about 20 minutes to earn a gallon of gas. This twenty minutes at min wage holds true up until a gallon of gas costs about $2.18 and in July 09 it will be $2.41. When gas is $4 per gallon it currently takes over 35 minutes to earn a gallon.
Without thinking in these term people reacted to this real increased cost.
So you see the real cost of gas has spiked and this has caused the rest of the house of cards to fall.
If the "experts" had kept the price of a gallon of gas at 18 to 20 minutes of work at Minimum Wage, this would not have happened.
Now comes Obama whose task is to put this house of cards back together. I say GOD BLESS HIM.
At the same time don’t pin this all on Bush. It is our reaction to a market place event.
I look forward to comments.
Oil played a very small roll in this. The major factor in this "crisis" is easy credit… people had enough rope to hang themselves with their mortgages and credit cards.
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This is actually in fulfillment of bible prophecy.
Armageddon is coming and people earth wide are getting a final wake up call to motivate them to action.
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Not really. The Zionism is the main reason.
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I think the ceo’s of certain companies caused the economic crisis not oil and gas prices.
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Me.
Im sorry
It’s all my fault, and i take full blame
I bought that s.u.v in 07 @ a steal to make a profit
Put 10,000 in the Market in jan 08
Had a tree fall on me @ work and had to go on ssdi
Veterans admin Paid for my surgery & pain meds
God i feel so guilty
How can i go on
Lets all pray for eachother & we will get thru it all
And yes the end is very near
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well unemployment also causes people to cut back on gas money.
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It may have a factor in it since our country and many other countries are so dependent on it. Many people have to drive 20 or more miles to work each way, so when the gas prices spiked up, it was costing people anywhere from $50.00 to $90.00 a week or more for gasoline alone. With their paycheck amounts remaining the same or less, they had to cut back on other things to make ends meet. Quitting a job because of it being too far is not an option for most because jobs are too hard to find already. Without much if any extra money for people to put aside to save or to risk in the stock market, they found themselves unable to have purchasing power to keep local businesses going strong.
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While I respect your attempt to find the first cause, I cannot accept an analysis based on the minimum wage. Minimum wage earners are not discretionary gasoline users. The marginal demand is set by discretionary use. While the U.S. public does not accept the China and India gasoline use as a component of aggregate demand, it is major contributing factor to world demand and price. Demand push inflation on the energy complex has stalled for now. The causal connection between the officeholder of the presidency in the U.S. and a price of gasoline is not clear to me. Perhaps your country could increase domestic production and refinery capacity to reach a price point that is more to the liking of your population.
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They helped finish off the economy. First it was the rich greedy banks over extending themselves. But the high price of gasoline, along with high taxes, took to much money away from the middle class. Couple that with the government sucking way to much money out of the economy and things snow balled. Then the government used the tax payer’s credit card to give the rich elites and the corporations lots of cash in return for bribes and pay offs. These bailouts were all done using money borrowed on the open market which left the economy short of cash.
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The price of oil isn’t the problem. Oil cost is market driven – at least to an extent. But the prices and supply are out of our direct control for the time anyhow – until we start to produce enough of our own.
The cause of it all – which was very much in the control of the USA is the housing crisis. And I don’t mean the fake appreciation of houses like the ones in California.
The cause has been the change in how loans were done. Back in the late 90′s, Acorn and other liberal groups saw what they felt was racial discrimination in lending practices – the limiting of lending to people with poor credit, which includes alot of the black population.
The only way that lenders were willing to lower the credit requirements to give loans (thereby increasing risk) was to raise the interest rates, and also to give more ARMs (adjustable rate mortgages). When a family had $1,400 available per month for debt, and they were renting for $600, that left $800 for other debt, to support our debt driven economy. When they got loans for houses for $1,000 per month, that then adjusted to $1,200 to $1,600 per month, that used up all of their debt money – and they can buy nothing else. If the house gets foreclosed upon (as is now happening all over), then even those payments are no longer supporting the economy.
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