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?