An economic crisis has happened with regular intervals over the past century, it takes place again in 2008, and in all probability may happen down the road in exactly the same. There is no fundamental differences between such crises in our time and former crises, except perhaps which they occur faster, occur more frequently, but fortunately also heal faster.
THE TYPICAL SITUATION Ahead of the CRISIS
Martial Law
The crisis often occurs following a long period of economic growth, high employment and high activity. The specific situation for companies and folks are generally the following:
- The economic activity inside the whole society is extremely high after a any period of time of growth, but starts to say no.
- Stocks are traded for historically high quotes after a long time of rise of 300% or more, they have reached an all-time advanced level, but they're starting to decline again.
- The prizes of property properties are also high following a long period of growth, 300% or more, in addition they start to say no after an all-time higher level.
- Companies in many cases are overestablished after aggressive investments for borrowed money. The investments never have yet shown profitable, nevertheless the companies estimate great profits from your investments simply because they think the general growth continue uninterruptedly.
- Also the average people have high debts after having invested massively in their homes as well as in luxury objects. They've got some beginning difficulties with payment on their debts, but think these issues soon goes away having an anticipated further rises of non-public income.
The first STAGES From the CRISIS
The crisis normally has a slowly developing initial face. In this face the specific situation can reverse and the economy recover without great damages. Within this initial period it's possible to notice the following process:
- Steadily more companies understand that their massive investments don't pay back using the expected revenues and they have problems paying on their own loans. They abruptly reduce further investments and start selling off assets.
- Steadily more individuals also realize there is a too great debt to deal with with their private income. They reduce their consume and sell off properties and luxury objects.
- Companies are receiving steadily less orders, sell less and have less to accomplish as a result of reduced consume and investments.
- Earnings of companies and folks are declining and lots of are downright loosing money.
- Trading stocks values are sharply declining, often 20-30%.
- The property prizes are sharply declining, often 20-30%.
THE FURTHER STAGES LEADING TO A FULL-BLOWN CRISIS
Sometime there might be a crucial turning point leading in to the growth and development of a full blown crisis that it is impossible to recuperate from in a smart way. This level is the place a particular persentage, as an example 10%, of men and women and firms realize that they don't have enough income to handle their dept, and that selloff of properiies and stocks is not going to nullify your debt. The full-blown crisis has these properties:
Collapse
- The experience and earnings of companies are abruptly declining.
- Many companies experience massive losses.
- The amount of companies and people with debt trouble is abruptly rising.
- The amount of bakrupsies is abruptly rising.
- The unemployment level rises abruptly.
- Banks get into serious squeeze due to customers unable to pay on the debts and because of the decline within the price of properties becoming security for the loans.
- The troubled banks have to rise the interest rates by a lot of percent to counteract the losses. But this act only raises the problems for other banks, individuals and corporations and accelerates the crisis.
- A top percentage of banks get unfunctional and bankrupt
- Presently there will be massive selloffs of properties and stocks. The selloffs are exerted by individuals attempting to free themselves from a selection of their debts and also by banks attempting to stop losses on loans.
- The stock market cracks down by an new 50% or even more driven through the massive selloffs.
- The real estate market also cracks down a fresh 50% or maybe more as a result of massive selloffs, in fact somewhat slower compared to the stock trading game.
The functions Of your ULTIMATE CRISIS
The ultimate stage of the crisis is seldom reached, as the governments will at some time take control of the economic climates and secure a minimum functionality.
Inside the ultimate crisis producing goods and services within the society has fallen 30% or maybe more and continue to fall. Investments or building activities have totally halted. There is mass unemployment, 30% or even more.
The financial system has nearly totally collapsed, and it is only capable of supporting the daily payment for food, energy and other necessities. The assembly facilities and organizations with the society have fallen apart 30% or even more because of insufficient maintainance, meaning the society is not able to recover quickly.
No more THE CRISIS
Ahead of the crisis can end, all selloffs to repay on loans should be fulfilled. Then every actor in the society has to accept their losses. Debts that actors are not able to pay back must for some reason be nullified. Then all the pieces remaining with the former companies has to be fixed back together again into new functional units. Then the society can slowly rebuild its strength.
What causes THE CRISIS
A significant reason behind the crisis are over-optimistic companies and folks during the foregoing amount of economic growth. They tend to think how the general growth continue forever without interrupting periods of economic decline. In addition they have a tendency to overestimate themselves and think they will be a success within the competition against other companies or persons, not really a looser, no average performer, nevertheless the winner.
This optimism, that is a general human property, make all actors borrow massive amounts of capital and invest them in homes, luxury objects and increase of their business. This expansive behaviour have a tendency to accelerate for quite a long time untill in meets the wall.
Another cause are executives in banking institutions tempted to lend out as much money as you can to the borrowers, no matter the consequences for your bank and also the borrowers, as this behaviour provides the executives a massive short term personal gain.
HOW TO AVOID ECONOMICAL CRISES
Future crises are only able to be prevented by hindering standard bank lending out additional money to anyone who the borrowers will pay in a comfortable way. This can only be done by governmental regulations that set clear criteria that really must be fulfilled whenever a certain quantity of money is lent out.
Also banks has to be forbidden to determine employment contracts for executives that reward them directly for that amount of mortgages they establish.
THE TYPICAL SITUATION Ahead of the CRISIS
Martial Law
The crisis often occurs following a long period of economic growth, high employment and high activity. The specific situation for companies and folks are generally the following:
- The economic activity inside the whole society is extremely high after a any period of time of growth, but starts to say no.
- Stocks are traded for historically high quotes after a long time of rise of 300% or more, they have reached an all-time advanced level, but they're starting to decline again.
- The prizes of property properties are also high following a long period of growth, 300% or more, in addition they start to say no after an all-time higher level.
- Companies in many cases are overestablished after aggressive investments for borrowed money. The investments never have yet shown profitable, nevertheless the companies estimate great profits from your investments simply because they think the general growth continue uninterruptedly.
- Also the average people have high debts after having invested massively in their homes as well as in luxury objects. They've got some beginning difficulties with payment on their debts, but think these issues soon goes away having an anticipated further rises of non-public income.
The first STAGES From the CRISIS
The crisis normally has a slowly developing initial face. In this face the specific situation can reverse and the economy recover without great damages. Within this initial period it's possible to notice the following process:
- Steadily more companies understand that their massive investments don't pay back using the expected revenues and they have problems paying on their own loans. They abruptly reduce further investments and start selling off assets.
- Steadily more individuals also realize there is a too great debt to deal with with their private income. They reduce their consume and sell off properties and luxury objects.
- Companies are receiving steadily less orders, sell less and have less to accomplish as a result of reduced consume and investments.
- Earnings of companies and folks are declining and lots of are downright loosing money.
- Trading stocks values are sharply declining, often 20-30%.
- The property prizes are sharply declining, often 20-30%.
THE FURTHER STAGES LEADING TO A FULL-BLOWN CRISIS
Sometime there might be a crucial turning point leading in to the growth and development of a full blown crisis that it is impossible to recuperate from in a smart way. This level is the place a particular persentage, as an example 10%, of men and women and firms realize that they don't have enough income to handle their dept, and that selloff of properiies and stocks is not going to nullify your debt. The full-blown crisis has these properties:
Collapse
- The experience and earnings of companies are abruptly declining.
- Many companies experience massive losses.
- The amount of companies and people with debt trouble is abruptly rising.
- The amount of bakrupsies is abruptly rising.
- The unemployment level rises abruptly.
- Banks get into serious squeeze due to customers unable to pay on the debts and because of the decline within the price of properties becoming security for the loans.
- The troubled banks have to rise the interest rates by a lot of percent to counteract the losses. But this act only raises the problems for other banks, individuals and corporations and accelerates the crisis.
- A top percentage of banks get unfunctional and bankrupt
- Presently there will be massive selloffs of properties and stocks. The selloffs are exerted by individuals attempting to free themselves from a selection of their debts and also by banks attempting to stop losses on loans.
- The stock market cracks down by an new 50% or even more driven through the massive selloffs.
- The real estate market also cracks down a fresh 50% or maybe more as a result of massive selloffs, in fact somewhat slower compared to the stock trading game.
The functions Of your ULTIMATE CRISIS
The ultimate stage of the crisis is seldom reached, as the governments will at some time take control of the economic climates and secure a minimum functionality.
Inside the ultimate crisis producing goods and services within the society has fallen 30% or maybe more and continue to fall. Investments or building activities have totally halted. There is mass unemployment, 30% or even more.
The financial system has nearly totally collapsed, and it is only capable of supporting the daily payment for food, energy and other necessities. The assembly facilities and organizations with the society have fallen apart 30% or even more because of insufficient maintainance, meaning the society is not able to recover quickly.
No more THE CRISIS
Ahead of the crisis can end, all selloffs to repay on loans should be fulfilled. Then every actor in the society has to accept their losses. Debts that actors are not able to pay back must for some reason be nullified. Then all the pieces remaining with the former companies has to be fixed back together again into new functional units. Then the society can slowly rebuild its strength.
What causes THE CRISIS
A significant reason behind the crisis are over-optimistic companies and folks during the foregoing amount of economic growth. They tend to think how the general growth continue forever without interrupting periods of economic decline. In addition they have a tendency to overestimate themselves and think they will be a success within the competition against other companies or persons, not really a looser, no average performer, nevertheless the winner.
This optimism, that is a general human property, make all actors borrow massive amounts of capital and invest them in homes, luxury objects and increase of their business. This expansive behaviour have a tendency to accelerate for quite a long time untill in meets the wall.
Another cause are executives in banking institutions tempted to lend out as much money as you can to the borrowers, no matter the consequences for your bank and also the borrowers, as this behaviour provides the executives a massive short term personal gain.
HOW TO AVOID ECONOMICAL CRISES
Future crises are only able to be prevented by hindering standard bank lending out additional money to anyone who the borrowers will pay in a comfortable way. This can only be done by governmental regulations that set clear criteria that really must be fulfilled whenever a certain quantity of money is lent out.
Also banks has to be forbidden to determine employment contracts for executives that reward them directly for that amount of mortgages they establish.