How bad is the world economy right now?
i would like to know more about the economy crisis that the world is facing right now. is it real bad? or people just overreacting? will it last long? will it get worst?
Best Answer - Chosen by Voters
Well let's first understand America's economy problem because it's the ground zero in this stage. So...
Well to start things simple, answer me this: How many factories are in your town? How many factories do you know of? -- Okay now answer me this: How many malls, walmarts, Super Marts do you know of?
Now about those malls.. where are all their stuff made? In China or some other country, right? ... Starting to see a problem here?
How is it America is able to receive all it's stuff from over seas and not produce anything -- with no factories or anything? Why are all the factory jobs or producing jobs over sea? Well Because we do make and export one thing, the dollar.
SO what's important in understanding the danger we're in is understanding the dollar. It's the real focus here. Now, What is the dollar? And why do people except it as if it's gold? How can we buy all our stuff overseas and never sell anything back. How do we have an endless supply of dollars?
Dollars, although currency, are created by a Central bank, known as the Federal Reserve. The Federal Reserve, or Fed, loans dollars to the goverment in exchange for government Bonds. It's actually just like taking a mortgage out on your house. The government is supposed to pay back the loaned dollars eventually to the Fed (The Fed is not a government own institute and the government has no control over it. It is just a central bank).
So dollars could be looked at as nothing more then loan notes. Dollars represent debt owe by the government. Dollars = Debt. This might sound weird, but if you take out a dollar (Go ahead. Pull one out) and look at it. How many times do you see US Treasury on it? Compare that to how many times you see Federal Reserve on it (Again, the Fed is not a government own institute and the government has no control over it. It is just a central bank).
Now this system can be referred to as a credit base economy with a flat money system. This means that the country's credit or debt must be expanded year after year to be able to maintain a healthy economy. Basically american consumers must keep buying more stuff year after year to be able to keep a good economoy.
Remember those stimulate checks the IRS gave many Americans? They wanted to pump money into the economy by giving people moeny to buy stuff to help the economy.
Now to recap. If we bascially can print dollars out of thin air, not back in gold or any kind of value, why should we spend those dollars on factories in the US? Factories that have to be regulated, taxed, maintain payroll, maintenance, etc. We can just print up some dollars, buy stuff cheap overseas, and sell it back to Americans for more. Our economy system is built to work like this because the economy will grow as long as Americans keep buying stuff.
So wait. Why would other countries take our worthless dollars and build our stuff for us then? Why? Well because the dollar is the world reserve currency, which means on the global market, business or if anyone wants to buy anything, they must use dollars. Every country does business in dollars. The dollar is a trusted currency because everyone needs dollars!
So why are we in trouble (I'll get to world in a second)?
The American economy is in trouble because all we do is buy stuff. We've over consumed ourselves. We didn't save money, so we have no savings (but with this monetary policy, or the system I just describe to you about, there's really no reason to save money). And if you have no money saved, banks can't give out loans and you can't buy stuff. And if you remember, Americans need to buy stuff.
So this is where the world comes into play. In order to try and keep Americans able to keep buying stuff, we started borrowing money. We borrow money from China, Japan, Saudi Arabia, and other places that still trusted the dollar. And for years it worked, but even that wasn't enough.
So to recap once again. All America can do is buy; not make. And they must keep buying more and more. Soon they needed to borrow money to be able to buy stuff. We were using money that wasn't ours. Buying stuff we couldn't afford. Living beyond our means. Think of it as a credit card; we maxed out, and we can't pay back. So now this recession, and soon to be depression, will be our "moving back in with our parents move"
And as for the world economy.. they've accepted dollars as if they were gold and are now realizing their true value; just green paper. And on top of that, they've loaned out all that money to us, we can't pay back. Their downward economy will reflect ours for a little while as they get used to losing their big customer. Their economy will recover soon.
So it all comes down to this.. The economy depends on people buying more stuff every year and we've consumed ourselves. You can't turn malls into factories over night.
Well to start things simple, answer me this: How many factories are in your town? How many factories do you know of? -- Okay now answer me this: How many malls, walmarts, Super Marts do you know of?
Now about those malls.. where are all their stuff made? In China or some other country, right? ... Starting to see a problem here?
How is it America is able to receive all it's stuff from over seas and not produce anything -- with no factories or anything? Why are all the factory jobs or producing jobs over sea? Well Because we do make and export one thing, the dollar.
SO what's important in understanding the danger we're in is understanding the dollar. It's the real focus here. Now, What is the dollar? And why do people except it as if it's gold? How can we buy all our stuff overseas and never sell anything back. How do we have an endless supply of dollars?
Dollars, although currency, are created by a Central bank, known as the Federal Reserve. The Federal Reserve, or Fed, loans dollars to the goverment in exchange for government Bonds. It's actually just like taking a mortgage out on your house. The government is supposed to pay back the loaned dollars eventually to the Fed (The Fed is not a government own institute and the government has no control over it. It is just a central bank).
So dollars could be looked at as nothing more then loan notes. Dollars represent debt owe by the government. Dollars = Debt. This might sound weird, but if you take out a dollar (Go ahead. Pull one out) and look at it. How many times do you see US Treasury on it? Compare that to how many times you see Federal Reserve on it (Again, the Fed is not a government own institute and the government has no control over it. It is just a central bank).
Now this system can be referred to as a credit base economy with a flat money system. This means that the country's credit or debt must be expanded year after year to be able to maintain a healthy economy. Basically american consumers must keep buying more stuff year after year to be able to keep a good economoy.
Remember those stimulate checks the IRS gave many Americans? They wanted to pump money into the economy by giving people moeny to buy stuff to help the economy.
Now to recap. If we bascially can print dollars out of thin air, not back in gold or any kind of value, why should we spend those dollars on factories in the US? Factories that have to be regulated, taxed, maintain payroll, maintenance, etc. We can just print up some dollars, buy stuff cheap overseas, and sell it back to Americans for more. Our economy system is built to work like this because the economy will grow as long as Americans keep buying stuff.
So wait. Why would other countries take our worthless dollars and build our stuff for us then? Why? Well because the dollar is the world reserve currency, which means on the global market, business or if anyone wants to buy anything, they must use dollars. Every country does business in dollars. The dollar is a trusted currency because everyone needs dollars!
So why are we in trouble (I'll get to world in a second)?
The American economy is in trouble because all we do is buy stuff. We've over consumed ourselves. We didn't save money, so we have no savings (but with this monetary policy, or the system I just describe to you about, there's really no reason to save money). And if you have no money saved, banks can't give out loans and you can't buy stuff. And if you remember, Americans need to buy stuff.
So this is where the world comes into play. In order to try and keep Americans able to keep buying stuff, we started borrowing money. We borrow money from China, Japan, Saudi Arabia, and other places that still trusted the dollar. And for years it worked, but even that wasn't enough.
So to recap once again. All America can do is buy; not make. And they must keep buying more and more. Soon they needed to borrow money to be able to buy stuff. We were using money that wasn't ours. Buying stuff we couldn't afford. Living beyond our means. Think of it as a credit card; we maxed out, and we can't pay back. So now this recession, and soon to be depression, will be our "moving back in with our parents move"
And as for the world economy.. they've accepted dollars as if they were gold and are now realizing their true value; just green paper. And on top of that, they've loaned out all that money to us, we can't pay back. Their downward economy will reflect ours for a little while as they get used to losing their big customer. Their economy will recover soon.
So it all comes down to this.. The economy depends on people buying more stuff every year and we've consumed ourselves. You can't turn malls into factories over night.
