The economists can`t figure out what has caused the world economic crisis?

Question

What do you think?Could it be that big oil just took the frosting off of the cake while we were sleeping?

Answer 1

What do you mean "the economists" can't figure it out? The high level explanation is very simple. The world -- and especially the US -- has been awash in liquidity for the last eight years at least. when you have a lot of money to put to work you start making riskier and riskier investments because sitting on cash isn't profitable. If (or usually when) risk prevails, investors and lenders stop taking even moderate risks, and liquidity becomes an issue as it is right now. It's very hard to get risk capital for even fairly solid investments, let alone riskier ones. Eventually that will let up when people stop talking about every event as a "crisis". I think there were 436 crises at last count.

Answer 2

SDD hits the nail on the head...  lots of money floating around, then that money was invested, those investments became very risky, and then bad things happened.  As far as home foreclosures and high gas prices, I'm not sure there is a huge correlation between the two.  It could be argued that high gas prices have helped nudge food prices higher.  New cars may cost more, but inflation could play a role in that, not gas prices.  High gas prices have led to many cars being nearly given away.

Answer 3

Please take this answer open-mindedly:

I don't know what you mean by world economic crisis. Plenty of countries are doing fine, and overall world output has only grown in the last few years. If you want to know what caused the problems in America, it goes something like this:

The detailed answer goes something like this:

When Bush became president in 2000, he and the Federal Reserve repealed a bunch of mortgage regulations, which were designed prevented mortgage firms from making bad loans.

This caused a speculation bubble in the mortgage industry as companies like f***y May and Freddie Mac started dishing out NINA (no income, no assets mortgages). Eventually, this bubble collapsed, and the people holding those mortgages bankrupted and some were bailed out.

Now speculators anticipate inflation in America because of our trade deficit with China, so investors are investing in commodities (such as oil and food), because it is the only market safe from the devaluation of the American dollar. That has driven up oil and food prices.

High gas prices, and the impacts of the mortgage crisis has put the country in recession, as well as just a downturn in the regular business cycle.

I hope that helps, and once again, I hope you treat this information open mindedly.

Answer 4

SDD is right and so is Tangent.  One of the biggest causes of economic problems today is the number of risky investments people have done.  Especially with the mortgage crisis.  That's kind of why several companies have gone down.  They gave money/proper term- mortgages away and allowed many people to get them even though they could not afford it.  Is the situation a 'crisis' though?  I don't know.  It is a problem, but I'm not sure if one can call it a crisis.  It can be fixed though and there is a project that our housing market will get better within months- I hope within the end of this year.  Things will improve and get better, I'm sure they will.  I have faith and the economy has been through worse and it is resilient.  In addition, foreclosures and gas prices are not related- both may trouble consumers, but they share no connection- but everything in my opinion will be fine and get better.

Answer 5

I think the phrase "credit crunch" sums the situation up rather nicely. Unfortunately periodic recessions are a feature of the way central banking works.