Quote:
Originally Posted by Ford Prefect
I'll be the first to admit I don't understand economics. I have a question therefore that maybe somebody more enlightened on these matters can explain for me.
If I understand things correctly, a big reason for the global economic crisis is too much risky credit being given out and over spending. Is that correct? If so, how does the government overspending and running a deficit fix the problem? Isn't this just more of the same behaviour that created the problem in the first place?
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I'm not going to try to explain everything, but there are a number of things at work here:
A) Credit given to a lot of parties who shouldn't have had it
B) That credit being packaged up and resold around the world as AAA rated
C) Because of A+B then banks stopped trusting each other and stopped extending any credit, thus tightening the system and effectively grinding it to a halt.
So the government getting people to spend, and spending money to loosen credit is going to help. Its not about making sure that anyone and everyone can get a loan/mortgage, its about the day to day operations of business and them being able to secure financing for development and day to day business.
That is a total Coles notes version, and I'm leaving a lot out and glossing over even more!