World Economy? End of Credit Crunch?!

I couldn’t think of what to write in my blog so I chose what was the hot topic in the papers I’ve read yesterday… And Yes!! The “credit crunch”. The credit crunch had impacted negatively to the world’s economy, stocks are dropping out of reach, and people are losing money as the economy strives downwards. I believe as a student it all started with Fannie Mae and Freddie Mac, one of US largest mortgage companies almost declared bankruptcy and the US federal government bailed them out by buying most of their shares. And it became government enterprise, some say they were wrong, but some say they were right because if they really let Mac and May declare bankruptcy it would probably have a bigger ripple effect to the world economy. Next in line was Lehman Brother that got in trouble, one of the largest investment banks in the US that had run for more than 100 years. They were losing lots of money and finally they could not stand to run their business anymore and were force to declare bankruptcy. The government did not bail them out to stop the ripple effect that had happen today, but experts say there are so many companies that are going to fall if the federal government just keep bailing them out, they are going to ruin the economy by doing that, so they have to selectively choose which would cause the least ripple effect to the world economy. The next day after Lehman Brothers declared bankruptcy the world stocks suffered a significant drop in the history, Lehman Brothers was also a globally known investment bank that has businesses throughout the world, many trading partners with them has also suffered a huge amount of money loss. Not to mention, many other organization like AIG are at the urge of bankruptcy and suffering from the credit crunch. (AIG got bailed out by the fed after Lehman Bros fell)

After those event happen from beginning of Sept 18th, 2008 (Lehman Bros declare Bankruptcy), many countries’ stocks are just going down at a significant pace, there might be times that they would climb back up but eventually they would just fall. Government all over the world know that have to take action now, or the situation would get worse, many leading economically countries in the world has injected lots of money to the federal bank so they could stimulate the economy with corporate borrowing money from them to hold their business, but experts say this solution only helps in a short run, government would have to think of something else to stimulate the economy in a bigger picture (long run).

Just few day from today, I saw the headline “G7 pledges joint action to beat credit crunch”, the world’s leading nations promised greater co-ordination to end the global credit crunch. I think this is considered a historical event because 7 leading countries in the world announce of cutting interest rate at the same time to stimulate the economy. It’s not just 1 country but seven central banks across the world cut interest rates in a bid to stabilize the financial system. With lower interest rates corporations would start putting their money elsewhere and start investing and increasing expenditure rates.

We’d all hope this is as low as the economy can gets, with all these rate cuts, we hope it would take effect as soon and possible and the world economy would stop striving downwards and go back to its usual track where it had before the crisis.