Perspectives - Personal Finance Blog

Linda says:

A couple of years ago, a fashionable idea was that the world’s central planners’ had become so clever that the economic cycle was dead!!!!! No more booms, no more busts, there would be just smooth sailing.

Like many other “hot” theories, this is another one for the dustbin of history. The recessions and economic slowdowns that many older adults have experienced before are back with a vengeance.

For those asking what has happened,the simplest explanation is that major debt problems have surfaced. Whilst there have been productive technology advances and rapid development in countries such as China and India, much of the boom was also being financed by ever increasing debt levels.

A nasty consequence of the calm economic conditions, was that they encouraged the taking of bigger and bigger risks. The hedge fund became the fashionable investment of the day, with often leverage of 100 to 1. So as the stakes have become too high, there has been a bit of panic and a resulting fall in many asset prices.

The rapid collapse of house prices in the US and the sub prime debt crisis have also exposed the degree of risk taking, which has occurred in other areas of the economy. The problems are not over , because the level of risk has been recognized as excessive in many areas and will need to be progressively reduced.

This entry was posted on Thursday, June 12th, 2008 at 8:01 pm and is filed under Credit, Economy, General, International, Investing. You can follow any responses to this entry through the RSS 2.0 feed.