Small Talk & The World Economic Crisis….

Everyone is talking about the ‘World Economic Crisis’…..don’t know if anyone really understands it….many predictions… most are almost as accurate as the weather forecast…

This post is about some interesting insights that were shared over the usual ‘small talk’ about this big popular topic!

We had a whole lot of people home for during the Diwali week  and when you have guests everyone has to sit and make small talk..I am a pro at small talk…I can strike a conversation with almost anyone… it comes naturally to me and I quite enjoy it…..and my baby brother hates it….but when people are home he has to do his share of it…and now with slightly over 22 years of practice (ok minus 3 years..when he was too small to talk) he has become quite proficient at it….

So he would invariably end up sitting and striking a conversation with the ‘uncles’ who came home…and he shared his secret technique with a sure shot question which worked wonders….:-

What do you think of the World Economic Crisis?” Or a version of it…depending on the background of the ‘uncle’ in front of him! (Different versions- What will happen to the Indian Stock Market…? What would be the best time to by real estate?)

Everyone would have an opinion on each of these and a longish opinion on atleast one them…so small talk is taken care of till someone comes to rescue him!

During one such conversation..he got an interesting insight from one of those well travelled well informed uncles which he shared with me…It was so simple that I though I should write a post on it for two reasons

1)      Writing  helps me understand it better

2)      If I don’t write it…chances are I will forget it three days from today

3)      I might as well share it with the people who read my blog and get their views on it!

 

 

It all started in 2001 when the US was undergoing a recession( I was cozily tucked away in college at that time and did not even realize when the recession came and went…but I hear stories about it from my friends who were affected by the IT bust and had trouble getting jobs)

 

It was during this recession that the US Fed cut their interest rates from 5% to 1% ( Now I don’t know if I completely understand what the US Fed is…but I think it is equivalent to our RBI…and I understand even less what cutting interest rates means….but what I understand is that if interest rates are low…people will not keep their money in the bank as it  is not giving them good returns and use them for other purposes like stocks…real estate etc)

 

Now because of the interest rates cuts, the liquidity in the market increased significantly. Banks were more than willing to give loans and the criteria for giving loans became lax.

Housing prices went up since money was available in the market  and the demand for real estate was high. People started living beyond their means on credit.

Makets were happy…demand  for everything was high…Life was good and the US markets overcame the recession in 2001.

But then slowly  things turned ugly and people started defaulting their loan payments….and banks were left in a lurch with bad assets…and eventually they started collapsing…

 

And since Thomas Friedman discovered the  “World is Flat” (by the way in case you have not read the book…I highly recommend it) the US mess affected the entire world in some complex manner ( my bro got recued by lunch being served at this point of time from the small talk he was indulging in…so I don’t think he got further into understanding the complexities of the world economic crisis…L Ah..looks like we will have to call this uncle again for lunch again…I so wanna hear the rest of the story from his perspective!)

 

So that was all from this small talk on  the World economic crisis!

 

Now you may say…what new…..I already knew this…..well maybe you did….but I did not…I loved the simplicity that  it was put in…and atleast I did not realize that the 2001 crisis was when the seeds to this mess were sown!!

Adios….Hope the Meltdown….Slowdown…Recession does not effect you!

PS- This is not my normal kind of post…..so do tell me what do you’ll think of it?

Advertisements

4 Comments

Filed under Experience /Incident /Activity

4 responses to “Small Talk & The World Economic Crisis….

  1. Chalo Gao ki aur…
    (Lets go back to villages)

  2. Anand.U

    Princess…there is two sides for every coin…In a spending economy & executing a step ahead aggressive world reform … this was expected crisis…only thing they expected it around 2010…in my current emba program being the lone Indian sitting with Americans …this is very hot discussion with various experts out here…The best thing about Americans are they respond well during crisis…

    I am no crisis expert but did happen to see the ndtv debate on the same issue…but whole debate looked out of context…as they are using US as big excuse to stop further necessary economic reforms…

    Key thing is that U.S understood following things now
    —They are no more the major influencer’s in global economy.
    —China,India and Brazil play a role in Global economy…
    —Earlier US benefited from Intra European Country Trade for example German -France did all the Trade using US Dollars as base…with EU they lost out the free ride…although still enjoying the free ride with middle east and Asians countries..
    —They see a big opportunity in this crisis situation as it is easy to move from US GAAP standards to IFRS (International Finance)…
    —The average middle class people across the globe has increased…and people’s morals,values and needs remains the same across the globe…

    As far I know that Americans have got their arms around the crisis…they will solve it sooner or later…As Indians we got to find our a way out of the 21st century reputation of being the rat in other’s castle…hav fun !!!

  3. @HOBO 😛

    @Anand:
    I get all of it.. But to put it in the simplest of forms.. Like shilpa said, people had money and started investing in real estate and stocks.. when the prices crashed they had no where to go..
    Most of their purchases were on credit.. They had no more cash left to pay it off..

    The discussion about seeds being from 2001 is very true.. Then only large companies were affected, No lull was made about it.. But now, it’s every single US citizen who is affected.. If not all, a significant population..

    Indian Stock markets crashed following US crisis because the markets are hugely invested by foreign capital(FII – Foreign Institutional Investors, Most of the money is from the NRI’s).. When the crisis was seen in US, the crash in other economies was expected as the FII’s started to take money out of the Indian Markets.. Stocks crashed, as expected..

    The crisis situation is expected to be over by the next quarter..

    U may want to read my take on the Economic Crisis

    Kunal

  4. concerned citizen

    Well, since you menitoned Friedman and his book, here is a recommendation – a small easy read book –
    The interesting book, is by Aronica and Ramdoo, “The World is Flat? A Critical Analysis of Thomas Friedman’s New York Times Bestseller,” which offers a counterperspective to Friedman’s theory on globalization.

    Interestingly enough, the book written about two years back, discusses in the following chapters,
    “Debt and Financialization of America”
    “America”s Former Middle Class”
    “A Paradigm Shift for America” with prescriptions for the future

    the debt ridden American society, deregulated financial institutions, mortgage crisis and other related issues, with clear pointers to the economic crisis gripping US today. For more information regarding the same, check this out: mkpress.com/FlatExcerpts.pdf

    This is a small book compared to the 600 page tome by Friedman, and aimed at the common man and students alike. The authors point to the fact that there isn’t a single table or data footnote in Friedman’s entire book.

    “Globalization is the greatest reorganization of the world since the Industrial Revolution,” says Aronica. Aronica and Ramdoo conclude by listing over twenty action items that point the way forward, and they provide a comprehensive, yet concise, framework for understanding the critical issues of globalization.

    You may want to see http://www.mkpress.com/flat
    and watch http://www.mkpress.com/flatoverview.html
    for an interesting counterperspective on Friedman’s
    “The World is Flat”.

    Also a really interesting 6 min wake-up call: Shift Happens! http://www.mkpress.com/ShiftExtreme.html

    There is also a companion book listed: Extreme Competition: Innovation and the Great 21st Century Business Reformation
    http://www.mkpress.com/extreme
    http://www.mkpress.com/Extreme11minWMV.html

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s