This is the topic that has enticed almost all of us in the past four months or so(after the bankruptcy filed by banks all over the world). I am not here to review the effects of it or the effects that had caused it to happen but would like to review the overall inter connection between economy , credit crunch and globalization.I like to explain it in simple ways so that to understand them better though they have complex webs of interlinks of invincible inputs which cannot be captured in this mere discussion.
What is economy? The meaning cited in the oxford dictionary is "the state of a country or region in terms of the production and consumption of goods and services and the supply of money".
In simple terms, economy is "the money flow". This money flow can be stimulated by myriad of ways. The money you strive hard to earn and spend lavishly or sometimes sensibly on things you desire and things you dire for.The latter spending fits the latter aptly. More or less its the public that stimulates this money flow. If everyone wish to save their money in bank and stay thrifty on their spending this world would not need consumer products. So an countrys reponsibility is to make people spend their money. Spend on cars, real estate, mobile,TV, Ipod, computer, gambling etc. So if you spend your money the companies which sell their products get money and if you are working for one such company ,you will get money. Most of us get salary like this. So everyone would accept that money flow should persist.
Well next, we will try to correlate this with credit crunch. I have been following this for the past 4 yrs and I have to accept that it is a very complex process though you can see it in simple angle. I wonder whether those working in financial sectors understand why it emerged and how it spreaded all over. Again I wish to make my discussion very candid and simple. Credit crunch had its root in american banks. Once was their a rising boom in real estate in america and american banks issued loans to people with poor credit history i.e one who doesnt hold possessions which has value atleast equivalent to the loan he gets. In legal terms , he cant be entitled for the loan. Why did the banks give then? It was a miscalculationa and misconception the bank had that the rising real estate price would make everyone rich and they can pay back their money. Every measurable quantity in this world has a characteristics called saturation. So real estate price reached saturation and prices started to fall. So people who have got the loan were not able to repay back. So banks started to fall. They started losing money. But wait a minute, where did the bank get the money to lend. Well there are two sides in a coin.If one is seeking money another is saving money. Common citizens, Business people, filthy riches belong to both the side of the coin. So this resulted in many of them losing their business,houses, cars and biggest of all, their jobs. An detailed explanation is given in the below link
If credit crunch is the culprit, its accomplice is globalization. Globalization is the cause for deepening this credit crunch. The money flows from the Developed countries to developing countries. The banks in the developed country invests its money in other banks,real estates,stock market etc of developing countries.
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