World Business and the Economy across the world
Posted by admin on 17 June, 2009 under Business news | 
10 Comments to Read
With news springing up that the recession is over and there are signs of recovery in world economies governments need to be very careful not to repeat the problems of the past originally sparked off by 9/11 in the US – businesses need time to recover fully!
I previously wrote about how the attacks of September 11 sparked off a wave of interest rate cuts which began in the US and was followed across the world. This gave way to billions of “Cheap Money” and led to the banks lending to less credit worthy individuals. Once the economies started to regain composure post 9/11 the US government started to put up interest rates and we know where the story led after that with the American economy, the world banks and the collapse of major corporations across the world!
There is talk that with life coming back into the UK economy that the Bank of England could begin to think about putting up interest rates. However, the UK economy and the US economy and others across the world are far from out of the problems caused by past events.
Data is currently being released that unemployment is still rising with it being reported today by the BBC that “UK unemployment rose to 2.261 million in the three months to April, the highest since November 1996“. Government officials need to be considerate of the delayed effect or lag effect on world economies of unemployment.
As the jobless total increases there is less money spent within the economy and businesses suffer still further, and may need to make yet more people redundant and so on.
It is excellent news that we are seeing this positive news coming to the fore and this will in turn give businesses and people more confidence, which will hopefully begin a positive upward spiral.
Mike Jobs said,
Be careful of saying that cheap money means that banks would lend to less credit worthy individuals.
At the end of the day a bank will want to make money off of the lending it makes, so even if the interest rate is low then it will still want to make money and make sure its clients are credit worthy.
For a bank it is not the rate of interest for lending that matters, it is the spread between the rate it gives to its depositors and the rate it gives to lenders – so a lower rate may not induce more risky lending if the spread is the same.
admin said,
It was the case that there was plenty of cheap money around and the banks did lend to the “NIJA” people i.e. no income no assets which is what caused the present banking problems – I am not saying that cheap money means that banks will lend to less credit worthy people and quite the opposite, no matter how cheap or expensive money is then the banks should use the same lending criteria to lend – thank you for your comments
Business Web Templates said,
Small businesses in particular must be fiscally conservative, to whether future economic difficulties or slow collection cycles.
Mike said,
I think any talk of a recovery is premature at best. There will not be a true recovery, much less rapid growth, without a catalyst. There’s really no reason to be optimistic for long term growth just yet. Any short term rally is just that – short term, and likely due to the feeling of relief of having not fallen off the cliff economically. But bottoming is not recovery.
As for banks lending to people who couldn’t pay them back, it wasn’t “cheap money” that caused that so much as affordable housing legislation and laws that mandated lenders have the appropriate number of minority borrowers. I’m not saying that minorities can’t pay back the loans, but when lenders are forced to consider race/ethnicity/gender over ability to repay a loan – that’s a problem. Cheap money only accelerated the problem.
Mike said,
I should state that my comments are focused on the United States. I was a little too quick on the ‘submit button’
admin said,
In my opinion the cheap money was part of the overall problem – people “over” borrowed at a cheap rate and then when rates started to rise again they could not afford to pay the loans back. I was not aware of the legislation you refer to – out of interest when was this introduced and this is typical of government meddling and political correctness gone mad! It is totally crazy to force banks to lend to people regardless of their financial status in favour of their ethnic background – how crazy is that and any country that does so is asking for problems.
Kirk said,
i agree with mike that it’s a little premature to state that we are on our way to recovery… but at least that is where we are headed, there is some movement, even if they are merely baby steps…
Josh said,
The recovery is finally beginning, which is a good thing. These things though are a natural phenomena. It usually shows a boom will be here in a few years time like usual!
.-= Josh´s last blog ..Hello world! =-.
Mike said,
The legislation I was referring to is the Home Mortgage Disclosure Act (HMDA) started in 1975 (http://www.ffiec.gov/hmda/). HMDA required lenders to report certain data about home purchases like the reason (primary residence, refi, etc..) as well as the loan amount. Race, gender and income were added in a 1989 amendment (http://www.ffiec.gov/hmda/history2.htm). After that, it becomes trivial to find the institutions who don’t have a high enough quota of minorities as customers…
.-= Mike´s last blog ..6 States Hitting Residents With Big Tax Hikes (and Why it’s Absurd!) =-.
Howie@Help with Debt said,
Yes – there are some green shoots but with unemployment rising fast, we could easily a double dip back into recession.
Especially if interest rates rise too fast.
.-= Howie@Help with Debt´s last blog ..Things You Should Know About IRS Mileage =-.
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