to the Bank, financial meltdowns and extreme emergency measures have investors on edge. the media is doing its part to play in these fears, producing titles that do not have the appropriate context. 29th September the headlines said it all, with every news outlet shouting about Dow Jones industrial average was the largest point drop in history! Never mind that it was only 17th the largest percentage decrease (which is still bad, but not "Crash" bad), the media are trying to parlay the fear of increased attention and viewership.
All this fear is pushing many people to ask the question, is depression ahead? works at Wachovia and Washington Mutual are stark reminders that it is apparently too uncomfortable but real, long-gone era. If the fear is enough to collapse the largest thrift in the country, what else is vulnerable?
Lost in the shuffle fall flavor noise, as well as sites spring up overnight, touting a list of bank failure predictions, some huge fundamental differences between then and now.
There are two main differences, highlighted systemic fear deflation. a closer look at two easy to explain why depression is not even a remote possibility.
First, bank failures in the early 1930-they were numerous and paralyzes. Many people think the collapse of IndyMac, Wachovia and Washington Mutual are thethe end of world scenarios . But in retrospect, from late 1929 through 1933, 35% of all deposits in banks were lost or withdrawn. The Bank for that period were untested.
In 1929 the bank is usually a city-Thrifts, instructions for one or two branches. There have been several major banks, especially in New York. When the stock market crashed and the real estate bubble burst has caused panic in New York banks, some of which are not. Depositors in these institutions did not lose everything, because there was no FDIC. This knowledge has caused several local banks in order, as people were afraid to lose their entire life savings.
So, no guarantees, bank runs spread across the country. Good institutions are not as much as the bad ones. Everything was hearsay. Because of these small banks are like islands had no way to start paying deposit withdrawals - they can not call in the mortgage or to sell them on the market because it did not exist. When vault cash left bank seeks protection and closed its doors, is usually good. Depositors who missed getting their money from losing everything.
Could cascade bank to happen again? Not likely, because the FDIC guarantee to $ 100,000 in deposits in one bank. And, in fact, despite well-published problems on Wall Street, only twelve banks have failed this year. While some people fear May shaky bank, that guarantee is enough to keep 98% of savers sure the ABA in April, the bank survey. In cases of Wachovia and Washington Mutual, no depositor has lost their money. Their accounts are easily transferred to different banks without any delay in access - Citigroup has taken Wachovia and guaranteed all depositors, while JP Morgan has guaranteed Washington Mutual account. Current Federal Reserve statistics show that the money supply and total deposits in banks are still growing (one full year after the crisis started), does not fall dramatically.
Deflation is the real reason the Great Depression. contraction in the banking system created a deflationary pressures, which turned into a severe recession into a depression. When you step back and think about the money, the most basic terms, except that the conservation value is also a medium of exchange. You can do the job in exchange for the money that you, however, substitute for the basic things you need. You can save money in exchange for basic needs at a later date. If your savings and your income are both vulnerable, without any immediate alternative source of money, you are forced to use another medium of exchange.
What happened in 1930 and 1931 was exactly that. Without the ability to earn more money (rising unemployment) and loss of savings (bank failures), people were forced to use other assets in exchange for basic necessities. Mass selling and bartering household goods and property of the reduced prices of all goods and property in the economy. In response, the economy had a dramatic contract to reflect the lower prices of both assets and profitability.
deflationary spiral become self-sustaining. Those who had money had to keep the exchange at lower and lower prices. Those who had money held on to it for fear and expectation of still lower prices. The net effect is almost complete halt in economic activity.
From 1929 to 1933 the overall level of prices in the economy fell 25%. They fall in prices broadly-based, accurate reflection of each economic sector.
a double whammy of the credit shock of bank failures (including 10 797 banks that went out of business) plus deflation caused an incredible 45% drop in GDP in the same period. Projecting that in today's economy, we should see 6.4 trillion U.S. dollars a decline in economic activity during the four years.
There are serious problems in the financial system, a recession is already underway in this first full year after the crisis began. But that contraction will not be nearly as severe 9% decline in 1930 (first year of depression), or 13% decline in 1932 (the worst one years of depression). The banking system will not tolerate double-digit decline in the depository account of the levels, even if there are more big financial failures. It should be the title for a newspaper and 24-hour news channel, not the end-of-the-world exaggeration.
0 komentar:
Posting Komentar