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The Credit Crunch and Its Effect On The Economy Essay Sample

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Introduction of TOPIC

Abstract

                        When analyzing the effects or consequences of a situation, it is imperative that an objective take be given to uncovering how the situation started, why we are seeing the consequences, when did the first effects become apparent, where are the effects seen most, and who is being must impacted. In uncovering and developing my research paper to discuss the effects of the credit and financial crunch both here in the United States as well as abroad in the UK I found that the situation is very dire on multiple fronts. These fronts or aspects affected by this financial crisis are seen in all levels of activity in the United States and the UK. Of foremost importance, is the element of financial insecurity that has cropped up in the financial markets, such as are banks, credit unions, mutual funds, stocks, bonds, mortgage industry, retail sectors, and import/export sectors.

                        Because these key foundations of our society have been adversely affected by the credit crunch, the middle classes and lower income families are also experiences doubts about their ability to overcome or thrive in this harsh financial environment. We shall examine how the financial crunch has affected these individuals and how the domino affect plays a strong role on the marketing and retail sectors that require the spending of such consumers in order to stay in business. As we examine these aspects of the financial crunch, we shall the groundwork for comprehending how our society did not just fall into this suddenly. Instead this was gradual development that left many people unsuspecting of the consequences behind their unwitting reliance on credit.

                        Furthermore, as the paper develops I shall point out why the consequences have become so calamitous to various elements of society, and how it has been disastrous to others. I shall also inform the reader about my research into what the government has and has not done in order to rectify the situation. As the government and governmental policies is essential to the development of successful business and infrastructures, we shall distinguish if their policies and procedures have positively or adversely impacted the credit crunch situation. Or perhaps, their policies might have not been geared towards the best interests of the American people? This too shall be developed further within this analytical paper.

                        As we draw to close, I shall off suggestions in how to alleviate the financial crunch being experienced by all aspects of the American society, perhaps how we could have started to overcome the situation at an earlier time frame. My suggestions shall holistically analyze how essential it is to see the “big picture” and not focus on the immediate details of the situation. I shall be doing an in-depth analysis of how we need to focus on ‘re-valuing’ the American dollar, hold our politicians responsible and question how they are spending our tax dollars,  stop using our credit cards like a free money crutch, turn towards responsible organic produce for our own health and welfare, and consider turning “green” in our personal lifestyles. Our failure to address the situation early on played a key role in where our financial perspective lies today. Because we seek to learn from this experience and hopefully not fall into the same mess we are in again, we need to unearth how we should prevent it from happening in the future.

How did we Arrive at this Financial Mess That We Are in Today? What Went Wrong?

                        The true origin of the American and UK financial crisis lies at the heart of the misusage of other people’s money. We are much more free with other people’s money than we are with our own. The financial predicament that we are currently facing draws from ignoring one essential fact: debt catches up with you!

                        Our financial mess originates from individuals running up much debt in order to purchase items that were essentially outside of their price range. Credit card companies and the mortgage industry were only too happy to grant credit lines to individuals and capitalize on the fact that if those some individuals could not pay their bills on time or at all, then late fees and finance charges would be abundantly applied.  In our capitalistic systems this was a worthy business endeavor. People went more and more into debt and the credit card and financial industries became more and more wealthy. But what happens when those same individuals who cannot pay their bills declare bankruptcy? This was not something the credit card companies, banking industry, or mortgage companies had the foresight or inkling on how to handle it.

                        As prices increased, including oil, people began to struggle to meet their basic necessity payments, and the fallout led to the destruction of their credit ratings and ability to meet payments on their outstanding debts. Real time economics proves that it was only a matter of time until the foundation of our societies was impacted by this financial distress. From the economic bubble perspective, consumer spending was being adversely affected by the decrease in home valuation. Americans and the United Kingdom citizens were used to the real estate markets booming and whenever they saw that their homes were increasing in value they took the opportunity to refinance to lower monthly mortgage rates at lower interest rates. This allowed for the equity to be draw out of the house or real estate property, and then with this new money in their pockets they were able to spend more in the retail industry. As a result the retail industry introduced more lines of credit which incorporated new marketing techniques for getting people more into debt. The retail industry also used late charges and finance charges to draw money out of people in a never-ending and vicious cycle.

                        The subprime mortgage and banking industries were using lax lending standards because they made the most money as the home valued at higher levels and their return customers spent more to refinance to lower rates. This real estate bubble and financing mind-set was also seen in the United Kingdom as well as the introductory interest rates reverted back to the regular interest rates and individuals were faced with the dilemma of making the mortgage payments or attempting to refinance on a home which they now owned more than it was worth (http://en.wikipedia.org/wiki/United_States_housing_bubble).

                        These individuals were also faced with other debts such as student loans, car loans, rising oil prices, increased costs in the retail sector, and the increase in the cost of living. This encumbered them from making timely payments or payments toward their other obligations, which in turn led to a drop in their credit scores. On a national level,  home sales and prices both fell dramatically in March of 2007 and people experienced a loss of jobs and challenges making ends meet due to overwhelming debt. It has undoubting been the severe consequence of the credit crunch that this is being experienced.

                        People had become comfortable with the 1990s computer and dot.com era and seeing that they could own as much as their hearts desired and still make their basic payments. There was a about a decade where people became secure with the thought that debt was inevitable and what did it matter if you owed a little here and little there to various lending and financial companies. It also took a short time for people to become overextended in their debts, and face financial pitfalls as they had to decide between making which payments to which debt collectors and putting food on the table for their families.  The Aug 7, 2008 article, “Home Truths:  A housing slump helped cause the credit crisis. But its effect on spending may have been exaggerated” in the Economist emphasizes that while the landlord or current home owners are adversely affected to the housing bubble burst, potential new homeowners might find that the lower prices are potential plus for them. In addition, this article illustrates that the current homeowner and landlord will likely cut back on their spending due to the “loss of wealth”. Young people, seeking to either save for their new home or purchase new ones, justifiably are able to get homes while the prices are lower. (http://www.economist.com/finance/displayStory.cfm?source=hptextfeature&story_id=11885272)

                        With this housing and mortgage bubble bursting it cracked the illusion that debt was something everyone needed in order to obtain what they desired. Now we can see that we arrived at this credit crunch because of lax loaning techniques and standards. We can see that the financial sector cared about making money versus the right decisions about who to lend money to and how much should be lent.

When Did Americans Begin To First Realize What Was Occurring?

                        This is a question which in hindsight people ignored all the telling signs of our impending financial crisis. The initial inklings that we were facing a financial crisis were in 2001, when the dot.coms were slowing and outsourcing was becoming a new wave for the future. The 2001 time period reflects the uncertainty that people were feeling after 9/11, and was mirrored in stock concerns. This period was also marked disappointments in stocks, and investments both here and abroad.

                        We see instances in 2007, such as in March of 2007, following the downfall of the subprime mortgage industry, Democratic Senator Charles Schumer of New York suggested that there be a federal government bailout of subprime borrowers in order to rescue homeowners from the consequence of losing their residences. This also showed that in early 2007 we were seeing the initial wave of large banks losing billions of dollars of taxpayers’ money because of poor investments and credit problems (http://en.wikipedia.org/wiki/United_States_housing_bubble). In early 2007, the federal government found a high rate of foreclosures impending and interest rates beginning to adjust. In addition, medical expenses, oil prices, and everyday commodities were also beginning to rise. Furthermore, mortgage strapped home owners were beginning to use their credit cards to make mortgage payments versus default on the loans. Credit card companies reported an increase in individuals who were falling behind on making the minimum payments on those now hefty amounts; thus, finance and late charges were being applied relentlessly.

                        In 2007, there were initial indications of substantial litigation against the banks for lax lending standards and non-rational sales. Regulatory investigations and potentially prosecutions were in the works. Via the article, The Credit Crunch – In 2008 The Worst May Keep Getting Worse, by Satyajit Das it is noted that litigations would be prominent and that “State Street recently provided over US$250 million against future litigation claims” in anticipation of the upcoming problems.

 (http://www.eurointelligence.com/Article3.1018+M5bb20434f50.0.html)

                        On March 14, 2008 the United States, the United Kingdom, and the global society saw crash and failure of the fifth biggest bank, Bear Stearns. The woes of the credit crunch claimed Bear Stearns, an 85 year old institution, that has stood the test of times with other financial entities and economic problems. This was a sign to the average citizen that we were indeed in a recession. Institutional clients had used these signs to withdraw large amounts of money from the bank and limit their investment into stock amounts. The fed came to the rescue of Bear Stearns via a 28 day loan provided and guaranteed by Morgan Chase. The article, Credit crunch woes claim America’s fifth-biggest bank, by Andrew Clark points out that “Within minutes of the announcement, Bear Stearns’s shares halved in value and other banks followed it downwards. Lehman Brothers’ stock slumped by 11% on uncertainty about its credit exposure, while Citigroup, Goldman Sachs and Bank of America all slipped by more than 3%.” (http://www.guardian.co.uk/business/2008/mar/15/creditcrunch.useconomy4)

                        This was one of the largest signs that we were indeed facing economic problems even while President Bush insisted that our economic condition was “reasonably stable”.

What are Some of the Key Effects of Our Financial Crisis?

                        In fact, the financial elements of the American, United Kingdom, and global credit crunch are becoming more obvious. We are seeing higher credit costs associated with purchases, a decrease in the availability of debt or easier access to credit, a forced situation of de-leveraging hedge funds and conduits/ SIVs, and overall a significant asset or capital losses seen by our financial institutions. The genuine economic effects to the societies as a whole will be slower to materialize.  We have already seen the outpouring of higher credit costs and tighter credit standards that will adversely affect all businesses and institutions.

(http://www.eurointelligence.com/Article3.1018+M5bb20434f50.0.html)

                        While the financial crunch began in the subprime residential mortgage sector, it has quickly spread to across all financial market sectors and into the various other institutions and marketplaces. Like a cancer, this systematic deterioration of our financial sectors has materialized into several key effects upon our society. Some of these key effects include:

  • an erosion of confidence in the financial industry
  • increase in unemployment by businesses struggling to make their ends meet
  • credit or loan lines not be extended to individuals seeking to start businesses as lending standards have tightened in an effort in ensure asset values increase
  • retail industries closing their doors due to lack of demand from consumers
  • retail industries increasing their prices to remain lucrative or stay in business altogether
  • investments in bonds and the stock markets faltering
  • a slowing down of global expansion efforts and trade between countries which has directly affected emerging economies which rely on the U.S. and U.K. purchases and exports for their growth prospects
  • mortgage and real estate industries failing, and being unable to aid individuals in refinancing or making new purchases
  • citizens becoming aware of the financial crisis that has transpired and not spending on items in the retail and marketing industries
  • investments chugging slowly down in an effort to limit the amount of money and assets in emerging markets
  • growth projections being shown as declining from 4.9% in 2007 to 4.0% in 2008
  • inflation increases in oil, commodities, and food prices both in the United States and the United Kingdom, as well as generally across all countries
  • increase in commodity prices has led to a negative outlook on the situation, in spite of the poorly timed stimulus package implemented under the Bush administration
  • individuals beginning to acknowledge that the federal and state governments are over extended in war efforts and unable to alleviate the situation via new policies and procedures
  • value of the American dollar and reputation has seen a marked drop
  • Freddie Mac, Fannie Mae, Bear Stearns, and IndyBank being examples of financial companies which all required immediate aid from the federal government in order to not fall apart

(http://www.imf.org/external/np/speeches/2008/032108.htm)

                        According to a report by BCC, the online foreclosure marketplace RealtyTrac,  reported that “the number of foreclosure notices in June topped 250,000 for the second month running and was 53% above June 2007.  Worse still, bank repossessions hit 71,000 in June – up an alarming 171% on a year earlier. In the UK, repossession levels also rose but nowhere near as fast.” The report also emphasized that of the 1.3 million people attempting to renegotiate their mortgages, they witnessed that the options or early mortgage deals where no longer available. “Prospective buyers weren’t much better off as the last 100% mortgage bit the dust, average two-year fixed-rate deals hit 7% and new mortgage lending fell to a 15-year low. Mortgage brokers, estate agents and house builders shed jobs as demand began to dry up.” (http://news.bbc.co.uk/1/hi/business/7523234.stm). According to Alan Greenspan, ““We need laws that specify and limit the conditions for bail-outs” that can aid institutions to determine what exact requirements or conditions must be made for banks to need the government to rescue them from financial disaster. (http://www.economist.com/finance/displaystory.cfm?story_id=11896984)

                        The Aug 7, 2008 Economist Article, “The Credit Crunch: The Year of Living Dangerously”, emphasizes that central banks main savior has been it’s willingness to provide liquidity to the financial marketplace. Even in Britain,inflation has been well “above target rates and the euro area and outside the comfort zone of America’s Federal Reserve”.  While some companies have had to face the grim reality of losing their hard earned business , the banks have been rescued by the federal government and this has been dubbed an obvious “socialism for the rich” and an ignoring of the needy

(http://www.economist.com/opinion/displayStory.cfm?source=hptextfeature&story_id=11885697).

                        The fact is that we have seen a remarkable increase in indebtedness in the lives of the working class and middle class. The tabular graph indicates that the debt to equity ratio has increased, along with the debt to income ratios and the mortgage debt in comparison to home values. This values show how shocking the increase has been over the last decades.

Year Debt to Equity Ratio Year Debt to Equity Ratio
1983 37.4 2004 61.6
Year Debt to Income Ratio Year Debt to Income Ratio
1983 66.9 2004 141.2%
Year Mortgage Debt Year Mortgage Debt
1983 28.8% of home value 2004 47.6% of home value

This shock on the economy which had seen rapid growth and prosperity in the 1990s, effected everyone after 2001 including banks that were not bringing in their prior profit margins. (http://www.wsws.or

g/articles/2008/jan2008/rept-j11.shtml) Is There Truly a

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Positive Spin to Our situation?

                        Yes there is. Americans have seen the devastation which occurs from having more debt than they can handle. In the face of the financial crunch, consumers have awoken to the fact that as a nation we simply can not live on “borrowed money” indefinitely. People have begun to realize that saving more is imperative to their continued success and survival in the grand scheme of things. They are learning to spend less, and rely more on purchasing only necessities of life. Credit card companies have already seen that people have taken to closing their credit card accounts and cutting up their cards in order to limit debt. There has also been a lot of movement to find economic alternative to “gas-guzzling SUV’s” whether it be car pooling, hybrid cars, alternative sources of transportation, or simply telecommuting.

                        Research has shown that Americans and people in the United Kingdom are evaluating which purchases need to be made imminently, and which can wait for later shopping trips. In fact, it is not uncommon for people to limit their eating out expenses and find creative outlets for entertainment which do not include expensive trips. Furthermore, people are determining that in order to meet the rising costs they must cut back on travel, holiday spending sprees, and other such expensive activities. So yes, there is truly a positive spin on this situation, and we might yet be able to hold our government accountable for the massive deficit amounts they have created and the unwise spending of our tax money.

(http://www.consumeraffairs.com/news04/2005/xmas_carol_2005.html)

Who is Feeling the Financial Crunch the Worst and What is Being Done to Alleviate Their Financial Suffering?

                        It is evident that the average citizen in the United States and the United Kingdom is experiencing the worst of the financial crunch. As we have established before, oil prices fluctuate drastically from year to year. But these fluctuations don’t just affect our driving obligations, but also our home heating costs. As home heat costs have skyrockets throughout the winters between 2005 and 2008, households are expected to pay approximately $350 a month for increased heating costs. This is a 48% increase in 4 years, from 2004 to 2008. In fact, the Wall Street Journal reports that the average American will wind up spending 20% of their take home pay on the increased energy prices.

                        This increase in costs has forced the average American to drastically cut back on holiday spending and purchases just to save a little money. This in turn causes a domino effect where retail profits drop because of lack of demand for unnecessary items or goods. These same retailers are forced into resorting to substantial discounts and early holiday sales in order to draw consumers into spending earlier in the year; therefore, their profit margins begin to fall. Hence, we are seeing that the financial crunch is affecting mostly the average American; including the middle class and lower income families who are relying more on aid from the government. As our taxes increase this dependency on government aid is faltering and the lower income families are not able to pay for medical or dental expenses. For those being laid off by companies this is especially difficult because they lose benefits and a source of income all in one big hit. (http://news.bbc.co.uk/1/hi/business/7523234.stm)

                        In May of 2005, credit card companies and banks who had lobbied feverishly in order to pass bankruptcy “reform” legislation were finally successful in the form of the “Bankruptcy Reform and Consumer Protection Act”. This act contained complicated rules related to filing for bankruptcy, placed strict restrictions encompassed within financial consequences, and authorized that credit counseling occur prior to the finalization of a consumers bankruptcy. This lead to debtors finding themselves costs more money to pay for bankruptcy. This was money that they did not have with the financial crunch that was occurring. BBC News reports that investors are uncertain because, “London and New York recently became “bear markets”, having lost 20% of their total value over the past year as investors shifted into commodities and other investments.” (http://news.bbc.co.uk/1/hi/business/7523234.stm)

                        Prior to the new bankruptcy act and law taking effect on Oct 17, 2005, a record number of 200,000 Americans filed for bankruptcy which lead to credit card issuers and banks seeing a massive amount of defaults on loans. In fact, HSBC announced that there were an additional $100 million dollars in defaults recorded in the 3rd quarter of 2005.  Furthermore, Hurricane Katrina brought about many financial institutions charging off high levels of loss due to the natural disaster.  J.P. Morgan Chase recorded $100 million in losses from Katrina, while Capital One experienced nearly $44 million; which was a horrible timing in the face of the financial crisis! Statistics associated with the financial condition of households falling within the middle three quintiles (80-60, 60-40, 40-20). “Their homes account for 66.1 percent of their personal wealth. Liquid assets account for only 8.5 percent of their wealth. Investment instruments (stocks, securities, trusts, etc.) account for only 4.2 percent.” The article points out how indeed the middle class depends wholly on its home valuation increasing and the housing market needs for values to increase and not decrease so substantially as has been seen.

                        Attempting to overcome the losses, credit industry increased their rates and their mandatory minimum payments. This lead to consumers angrily paying off debts and closing of their cards!  is also facing more potential defaults from increased mandatory minimum payments, and many fed-up customers are simply paying their debts off and closing their cards faster. “MBNA was so shaken by its cardholders’ account closings that its profits fell by 94 percent, leading to its takeover by Bank of America.”

(http://www.consumeraffairs.com/news04/2005/xmas_carol_2005.html).

What are the Global Impacts of the Credit Crunch?

                        While it appears that the United States and the United Kingdom are seeing the worst instances of a weakened economy during this financial crunch period along with a faltering housing market; the rest of the world is also experiencing its fair of share of financial problems.

                        Because the U.S. Dollar has fallen, developed and emerging economies world-wide which rely on import and export using the American dollar are also reporting losses. This is a significant impact upon global economy which report a “$945 billion dollar loss on a global scale over the next two years.”  The International Monetary Fund “predicts that the worst is not over just yet and that consumers and investors should prepare for a continual weakening of the economy” and should be preparing for the worst case scenario: another great depression (http://www.rebuild.org/news-article/global-impact-of-the-credit-crunch/).

                        The International Monetary Fund (IMF) also warns that “risks to domestic demand in western Europe and Japan have now shifted to the downside” as a direct result of the “contagion” emitted from the United States. (World Economic Outlook, October 2007, p. 11) Furthermore, the IMF foresees that “continuing turbulence in global financial markets could disrupt financial flows to emerging markets and trigger problems in domestic markets… [G]rowth [in Asia and Latin America] would be vulnerable to spillover effects from slower aggregate demand growth in the advanced economies…” [ibid., p. 19] (http://www.wsws.org/articles/2008/jan2008/rept-j11.shtml)

Some of the Suggestions to Overcome the Situation and       Secure Our Future So We Don’t Make the Same Mistakes Again…..

                        It is important to recognize that if we are to overcome the situation we will require innovative and creative solutions which truly look at the heart of the problem. In fact, we must ignore what political “talk” which might sound good, such as off shore-drilling,  and instead concentrate on what the real problems are and what long term solutions are required. From my research I believe that the issues at stake in the US economy are (1) the rapid and consistent devaluation of the American dollar, (2) increasing unemployment numbers in many sectors of our economy, (3) a feeling of prerogative or privilege which is being protected by the government, and (4) how people almost appear driven to incur more debt because banks and credit services tell them “it is only a small monthly amount” which needs to get paid each month (5) a current lack of comprehension that long term investments into your home for energy conservation are a big plus.

                        Some suggestions which might aid us in overcoming the above problems include recognizing that devaluation is in fact directly related to inflation. This inflation is how we are seeing the value of the American dollar go down. As voting citizens, we must steadfastly insist that the government account for its rash spending habits. The government, both on the federal and state levels, needs to discontinue devaluing the U.S. dollar. What does this mean? From a practical perspective, this means that the government needs to stop spending more than it accumulates from revenue. The average citizen recognizes that the cost of war in Iraq and Afghanistan are reasons why we are overspending to fight a war when we just do not have the additional funds. The government is printing up more money and taking on more debt to finance its endeavors elsewhere.

This causes the dollar to decrease in value as more is in circulation, and the value of it decreases. We already know that with the deficit itself growing larger due to the cost of war the dollar decreases in value.  Our elected officials must be made to take a hard look at how they are spending our hard earned money on transportation, education, medical requirements, and even social security.  While the government had decided to give citizen a stimulus check, we really have to consider where did that money actually come from? What is the big picture associated with divvying out such a large quantity of money? What are the long term efforts of doing so? In laymen’s terms, the government simply printed up more money , that it did not have, and devalued the American dollar even more. With more money in circulation to aid retailers it decreased the value of the dollar. From my perspective, it sure looks like the interest rates are going to rise, and maybe this situation will teach us to research and achieve better funding versus accepting poor lending standards and practices.

                                   From the stance of rising unemployment, it is unfair that businesses which employ individuals in the United States are forced to pay unemployment taxes. On the other hand, companies which outsource their work and labor forces do not have to pay these same taxes. As a result, they have more money in revenue because they are paying their employees less abroad and adding to the unemployment levels. This activity is counterproductive because from a financial perspective businesses might save more money by outsourcing and not having to pay the additional taxes, but it also means that unemployment will continue to rise in the face of such unfairness. A fair policy would be to increase the taxes on companies with immense profits, and apply a credit to companies which employ workers in the United States. This suggestion would put money back in the hands of American workers who can then turn around and use their paychecks in the economy and ease the financial crunch.

                                   In terms of our political officials we are seeing a lot of “talk” but no action. Our officials are predominately elected because they promise that they will protect us from problems such a loss of financial institutions via FDIC, and social security. Instead, what we see more often is government protecting the financial institutions which has been run into the ground due to poor management and poor funding. We need to have the political officials resolve to restructure financial intuitional policies and hold them accountable for poor management practices which lead to people obtaining credit or equity lines of credit to which they can not handle payments on. We are also seeing that social security has become a joke among the younger generations. These generations are cognizant that they will probably never see a penny of that hard earned money.

My suggestion is that we have a more focused approach on each individual funding their own social security and guaranteeing that they will have such funding available when they retire. We can do that by investments and placing such money in special financial promise bonds for their later usage. Right now, it is heard daily how the baby boomers are struggling to live on their social security and often forced to take part time jobs simply because they can not afford their medical or prescription expenses. We need to be heedful that this situation in dire, and if we do continue to remain in such debt and allow for unethical and poor lending standards then retirement will not be an option. Our government which promises to use social security to help retirees has instead used such money towards other endeavors. We need to retain those funds and force government officials to take pay cuts to when they are not doing their jobs. Call it a demotion if you will! They need to be reviewed like everyone else and if they are  not performing as expected then they need to be placed on disciplinary review.

                        In fact, it is high time that we start to consider or be educated in what it means to take on so much debt. For instance, if a mandatory class was given to new homeowners and people wishing to refinance about what it means to take equity out of their homes, what interest rates mean over time, what adjustable or arm mortgages stand for, and other such financial jargon; maybe just maybe they will be less swift to make financial decisions that jeopardize their futures. We had become more irresponsible because we did not do our homework about how much financing we could actually afford. I suggest that we take in account that we need to better manage and educate ourselves into saving and less into expecting the government to bail us out of our problems.

                                   We should also consider more about saving versus running ourselves into debt. Pay off those credit cards and focus more on paying for the house versus continuously refinancing and taking the equity out of the house. By taking the equity out of the house, you are starting back on square one and sometimes in the negative! If you begin to think of your house as a long term investment which requires large payments each money on energy expenses, you might consider conserving energy in your home.

Here are some instances and suggestions where you can do that and help our current financial crisis in both the short and long term:

  • Purchase appliances which are low-energy. This way your energy bill will decrease, and this will be a positive addition to the environment because our energy sources will be less depleted. Go Green!
  • Modify your house to make use of eco-friendly solar heating and cooling units. Long term the price of gas is only going to go up. Don’t be fooled by the lower gases prices or politicians promising energy rebate checks. It might go down for a short period of time, but once you become comfortable with that short term lower of prices, it can only go back up. We will never again pay the same prices the people did in the early 1970s for gas. In fact, they are even discussing pursing off shore drilling as a means to alleviate the costs of gas. Therefore, eco-friendly units will be better on our resources and ease your burden of higher energy bills. The energy companies will also then have to decrease prices so demand might go up again, and the credit crunch will be eased a bit.
  • Consider a hybrid or other energy efficient vehicle. In line with the point above, this vehicle long term is better on the environment and uses less gas because of its battery. Because the price of gas WILL go up, this would be opportunity to also take advantage of the government giving citizens a tax break should you decide to purchase eligible hybrid vehicles. You can check with a tax official to get a complete list of such eligible vehicles, and make a change for the better in your means of transportation.
  • Use renewable construction material such as bamboo when remodeling or adding additions to your home. Such materials are renewable and actually modernistic. They allow for usage in the structure of a building and as a finish material. In fact, most people would be surprised to know that the benefits of using bamboo is that is it also versatile and sustainable. It grows fast in the environment and preserves energy well. Furthermore, using bamboo will become more common as we are seeing a wood scarcity in the natural environment beginning to occur.
  • Try to use natural lighting as much as possible versus turning on the first lamp your hand touches. Windows are a positive asset to any house, and sunrooms and roofs also allow for great lighting to a house versus consuming more energy from lamps. This is better on our financially stressed economy because we are using less energy and have less dependency on Comed/Nicor.
  • Use insulation like blinds or curtains to keep the cold weather out during winter month, and conversely to keep the cool air in during summer months. This will limit the amount you have to spend on heating prices and is a practical approach to shielding the interior environment of the house’s temperature from the outdoor elements
  • during summer months consider running a fan throughout the night versus running the energy chugger AC. The fan can be turned backwards to draw cool air into the house, during the cool nights. Prior to the sun rising you can close all the windows to keep the cool air in during the hot summer days. This will allow for you to limit your AC usage and therefore place less reliance on your cooling system. That saves money big time!
  • Now let us consider landscaping. It is not difficult to consider planting heavy or large leaved trees in order to provide shade for your house, especially for areas that get very hot. This will also limit AC usage. Furthermore, you can grow edible plants to provide organic fruits and veggies for yourself and family. Organic truly does taste better, is truly healthier, and limits the costs associated with purchasing organic fruit or veggie during grocery shopping trips.
  • Consider public transportation or bikes (if possible) when traveling to save on the cost of energy. If possible, carpool with your spouse or coworkers to save on the gas and limit pollution. As a short term and long term suggestion, this can cut your gas bill down substantially!
  • organic foods, though slightly more expensive, can help you limit doctor trips because you are putting less farm-used chemicals into your system which cause ailments which then lead to doctor’s trips. This would save on medical expenses and help retirees lead healthy lives while being less dependent on Medicare, the healthcare, and the pharmaceutical companies.

                        From a global and international perspective, we need to be more attentive to other countries economies and develop a closer cooperation with them versus resorting to wars. By deciding to do develop that cooperation level we can create a bigger market and a more efficient one. This is especially true in the face that the United Kingdom is too suffering from financial crisis and the Bank of England is experiencing problems as well. We will also have better conditions for the economies of scale in emerging marketplaces and development countries. This will promote greater efficiency between industries and allow for business networking between nations which recognize that debt is a pitfall for any nation. This would enable us to jointly learn how to overcome our problems and perhaps start to limit our national debt because we can exchange services, and bring down the debt we owe to other nations

(http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2008/08/10/cccrisis110.xml).

                        These suggestions will enable Americans and people in the United Kingdom to be wary of politicians who proclaim and promise that they are protecting our financial best interests. It will allow us to be heedful and alert to changes in our economy and note that repercussions are always looming in the horizon if we do not address them early on. Our economic crisis has led people to reconsider how much debt they wish to incur. My research has show that people in the housing boom of the 1990s became to quick to take on new loans, debts, and financing options without being conscientious that all bubbles burst! These same people have heeded such suggestions as listed above just to ensure that they keep their heads above the water. Such suggestions would allow everyone to be careful to pay off credit card debts and lead more healthy existences.

                        Obviously, there is no easy cure to the situation but these are just some suggestions for easing the credit crunch and its effect on our economic pocketbooks. (http://www.helium.com/knowledge/177848-a-solution-to-the-economic-crisis-in-america-why-not-make-the-people-rich)

Summary and Concluding Remarks

                        We saw this credit and financial crunch coming, but maybe we just did not realize what it would truly entail. We expected our financial institutions, our government, and our infrastructure to educate and hold up strong during such times of financial turmoil: we were wrong. In fact, we behaved like teenagers; like nothing was going to hurt or harm us as we were ‘impervious’ to harm. Or maybe, we thought that can’t happen to us we are doing great and it will last. We were very wrong. This financial crunch as affected both here at home as well as abroad. We can not expect for the fix to be immediate nor for us to be unaffected by this financial crisis. In fact, practically- speaking we are in this for the long haul and we have been for several years.

                        The government can only hand out so many stimulus checks, and we can only see our American dollar devalued so much before we shrink out the middle class so bad that there is no recovery. As we speak, there are thousands of Americans struggling to make their basic ends meet, and watching as rises prices literally price some items out of their reach. As a deficit grows, and our baby boomers begin their retirement the costs of supporting those on Medicare and social security will only go up. Medical costs have drastically increased over the last years and maybe retirees are unable to pay their basic bills. Americans are becoming more vocal and aware that credit card companies and their schemes are dangerous to their continued existence, and so they have begun to limit the amount of money placed on those credit cards. We have learned from this credit crunch and we have suffered from it. And it will not be fixed soon.

                        It is best that everyone take such long term and short term suggestions seriously because the immediate foreseeable financial future is a difficult one. We will overcome the situation, but it is far from over.

Works Cited:

Bosworth, Martin. (2005). Crunch Time for the Middle Class. Website. Retrieved August 12, 2008 from http://www.consumeraffairs.com/news04/2005/xmas_carol_2005.html

Butterworth, Myra (2008). Credit crisis one year on: British banks claw back global losses. Website. Retrieved August 13, 2008 from http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2008/08/11/cnbanks111.xml

Clark, Andrew (2008). The Guardian. Credit crunch woes claim America’s fifth-biggest bank. Retrieved August 11, 2008 from http://www.guardian.co.uk/business/2008/mar/15/creditcrunch.useconomy4 

Das, Satyajit (2008). The Credit Crunch – In 2008 The Worst May Keep Getting Worse. Website. Retrieved August 10, 2008 from http://www.eurointelligence.com/Article3.1018+M5bb20434f50.0.html

Gehring, Linda (2008). The Economy and the Myth of the “Free” Market. Website. Retrieved August 13, 2008 from http://www.helium.com/items/1120060-a-solution-to-the-economic-crisis-in-america-why-not-make-the-people-rich

Griffiths, Katherine and Louise Armitstead (2008). Credit crisis one year on: How much longer will it last? Website. Retrieved August 12, 2008 from http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2008/08/10/cccrisis110.xml

Kato, Takatoshi (2008). Address to 43rd SEACEN Governors’ Conference. The Financial Crisis and Economic Outlook—Lessons for Securing the Benefits of Financial Deepening. Website. Retrieved August 11, 2008 from  http://www.imf.org/external/np/speeches/2008/032108.htm

Koecke, Tom (2008). Ideas to solve the American economic crisis. Website. Retrieved August 12, 2008 from http://www.helium.com/items/1120060-a-solution-to-the-economic-crisis-in-america-why-not-make-the-people-rich

North, David (2008). World Socialist Website. Notes on the political and economic crisis of the world capitalist system and the perspective and tasks of the Socialist Equality Party. Website. Retrieved Aug 12,2008 from http://www.wsws.org/articles/2008/jan2008/rept-j11.shtml

Nuttle, David (2008). Ideas to solve the American economic crisis. Website. Retrieved August 12, 2008 from http://www.helium.com/items/1120060-a-solution-to-the-economic-crisis-in-america-why-not-make-the-people-rich

Rebuild.org (2008). Global Impact Of The Credit Crunch. Website. Retrieved August 11,2008 from  http://www.rebuild.org/news-article/global-impact-of-the-credit-crunch/

Stamp, Gavin. BCC News. Credit crunch a year on: The losers. Retrieved August 10, 2008 from  http://news.bbc.co.uk/1/hi/business/7523234.stm 

The Economist (2008). The credit crunch: The year of living dangerously . Website. Retrieved August 13, 2008 from http://www.economist.com/opinion/displayStory.cfm?source=hptextfeature&story_id=11885697

The Economist (2008). The credit crunch one year on: Mission creep at the Fed. Website Retrieved August 12, 2008 from http://www.economist.com/finance/displaystory.cfm?story_id=11897000 

The Economist (2008). A personal view of the crisis ConfeNo table of contents entries found.ssions of a risk manager. Website Retrieved August 11, 2008 from http://www.economist.com/finance/displaystory.cfm?story_id=11897037 

The Economist (2008). Alan Greenspan on financial turbulence Hire the A-Team. Website retrieved August 12, 2008 from http://www.economist.com/finance/displaystory.cfm?story_id=11896984

The Economist (2008). Home Truths: A housing slump helped cause the credit crisis. But its effect on spending may have been exaggerated. Website. Retrieved August 8, 2008 from

http://www.economist.com/finance/displayStory.cfm?source=hptextfeature&story_id=11885272 

Wall Street Journal. Interview with former Federal Reserve Chairman Alan Greenspan conducted by David Wessel, The Wall Street Journal’s economics editor. Housing Stabilization Key to Crisis End. Retrieved August 12, 2008 from http://blogs.wsj.com/economics/ 

Wikipedia (2008). United States housing bubble Website. Retrieved August 7, 2008

From http://en.wikipedia.org/wiki/United_States_housing_bubble

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