The World's Economy Part 2

Part 2 of the story continues here...

It took about a year for things to stabilize after September 11, and then the dollar went back to being fairly strong, with financials slowly but surely losing strength, and the property becoming more and more volatile. All this time the oil price had being going up and up, and all sects of industry were slowing without most people noticing. Banks were begging the Reserve Banks to raise interest rates, but to no avail. Then, disaster again.

Banks all over America started going bankrupt. You see, they had loaned too much, and people couldn't pay back their loans, which meant that banks started taking houses back. But even though they had seized a house, they couldn't sell it because no one could get a loan big enough to buy it. Because the banks had no money, and there was no money flowing through the economy, everything came to a halt. Americans being the brilliant people they are, decided to not raise interest rates, but rather rely on exports to carry them through this tough time. This was literally the stupidest thing the could have done because no one actually buys anything from America.

With the dollar 'binne in sy ma' and the financal sector effectively crashing, no one had any money, and the east capitalized by increasing oil prices, which was also a very stupid thing to do. Investors had no money to invest, because they were paying banks back, and with oil prices so high, money stopped flowing causing a serious slow down in the economy.

This brings us to where we are now. [Sidebar: America buys everything from China, but China buy raw materials from Africa, so if America crashes, so does China, and so does Africa.] America are fucked because the dollar is to weak to do anything, no money is flowing because people are paying banks back, and many of the largest companies are declaring bankruptcy because no one has money to buy their goods. At this stage the only thing keeping America afloat is the fact that the East sell all their oil by the Dollar, meaning if you want to buy oil you first need to buy Dollars. If they stopped trading in Dollars the entire American economy would fold. Literally.

Now, here's the next mistake. America needed to save their economy and so they pushed $700bn into various sectors to keep banks and the like afloat. This wasn't a problem, but China did the same. Big mistake. You see, at this time China hadn't really felt the effects of the American crash, and by pushing money into the economy, they continued to not feel the effects, meaning that people continued spending money and not paying of loans. As a result, business have even more debt than before, and need to pay it back faster.

So, people invested too much in IT, then property, then financials, then oil and now we're reaping the consequences of greed. Not pretty. I would however like to use this opportunity to congratulate Mr Tito Mboweni and Mr Trevor Manuel for doing brilliant jobs at keeping the South African economy sheltered from the world events, and keeping consumers on the right track. Without their input we would literally be living off scraps right now. South Africa has a very resilient economy, but without them we would be only a little better than America currently are...