posted on Sep, 15 2008 @ 10:51 PM
reply to post by sc2099
Don't worry about "US economic collapse," because the economy is expanding even though the expansion has slowed down due to the FED decision to
make things tighter for the borrowers.
The current financial upheaval can't collapse the way goods and services are exchanged. There is enough money in the banks to keep things going. Even
if all the money suddenly disappeared from the banks, the US Treasury will print new money and haul it to the vaults.
The problem here is liquidity. For example, Lehman Brothers pay cash to the folks who will build your house. You promise to repay your lender over the
period of 30 years plus interest on the loan. But 30 years is a big room for changes from good to bad and vice versa. As it happened, too many folks
borrowed money to build houses that they couldn't actually afford with respect to the future economic development. They stopped paying the loans and
their houses got foreclosed. These houses are assets to the lenders, but they need to be sold, so the lenders would have operating capital to continue
what they do for living: lend money. The foreclosed houses didn't get sold in such a rate that it would keep Lehman and other lenders afloat. The
lenders are also borrowers; they can borrow money from banks and other investors. Since they couldn't liquidate or sell the foreclosed houses fast
enough to take care of their own debts, they got into trouble. End of the story.
This situation cannot collapse the economy; it just bruises the financial system. But it will affect the Federal Reserve Board's decision regarding
interests rate. Higher interest rate means slower economy, lower interests rate means the opposite. The Feds will try to avoid the mistake to keep the
interest rate low thus sending a false signal to the borrowers on any level that things are rosy and they can afford anything. In the long run, expect
higher interest rate and slower economy. That means your business may not get that many orders as you are used to, and things may stay that way for a
bit longer. Don't get fooled by a sudden drop in interest rates. It won't last long; these will be just short, temporary fixes.
It's a jungle out there -- and there is always a room for some unexpected sh-t to sneak through.