Quote:
Originally Posted by Cowboy89
It damn well was/is an economic crisis of epic proportions. The Drano, if you will, to 'flush' everything from the system was trillions of dollars of future generations money. The only reason why things are flowing once again is because world governments took control/insured trillions in bad loans from financial institutions. The true costs of this crisis will be felt for generations. The money used to service this future debt will be taken out of the economy in perpetuity.
My example only consisted of companies that still had viable 'real' projects. Let's not forget that there have been entire industries previously viable business models made obsolete without liberal credit. Also remember that the BOC and the US fed rates are as low as they possibly can be. Which in essence means that anyone who can generate any sort of a return on rediculously cheap money has an incentive to do so. While there has been some positive response, it's not like GDP is growing like gangbusters because of these incentives. Also should we hit another bump on the road while rates are so low, how are central banks going to stimulate the economy? Furthermore any method they try will not be free of very negative consequences (They will only look better on a relative scale with doing nothing).
Economic growth in the scope we knew it pre-crisis cannot occur at the same rates most likely for the next decade or so because:
1) Money governments use to service recently amassed debt, will be taken out of other spending that would have otherwise provided economic investment.
2)Any business that benefited from freely available credit for customers will not see sales volumes recovery very quickly.
3)Lower market returns is kinda a self-fulfilling prophecy for more lower market returns. When markets are performing well, University Endowment funds, retirees, insurance companies, etc. have a lot more spending power and thus stimulate the economy, the opposite is true when returns are lower or negative.
4)Consumers are likely to be net savers in large percentages not seen in decades to make up for the wealth lost during the crisis, leaving much less money to spend.
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Good post. That bolded part makes me wonder though....particularly in the US. This recession/depression was to be the deepest and lowest in recent memory and we're being told its over basically a year in... (2 yrs technically, but not felt by the general public for 2 years for sure!). I wonder whether the increased savings is a blip or an actual new trend for the public. When times are good again does consumption go back to the same standard, or do people actually start saving?
I hear about how everyone is cutting back, and then there are line-ups at a new mall and the other malls are all packed with shoppers as well. It can't be both!