In his book “Face à la Crise“, Luc FERRY says in page 7 : “In contrast with the forth opinion almost everywhere today, the current crisis is not primarily a financial one, but an economic one, which, in one sense, is more serious and implies fundamental responses”.
Why would a French state official tend to generalize the crisis, when stressing on the fact that it is an economic one, rather than a mere financial one?
Browsing the internet, I encountered some opinions strongly defending the label “financial crisis” and generously providing specialized arguments about this status.
In my opinion, however, the reason why most people believe this crisis is a financial one is related to the media impact over people. Hence, the media entitle it an “international crisis” or, as the author said, a “financial crisis”. Also, the crisis’s primary victims are financial institutions like banks, insurance and mortgage companies.
Now the obvious questions are:
– If the crisis is an economic one, does this mean that it is a consequence of the financial crisis?
– If so, what are the reasons of the financial crisis?
– And, what are the aspects of the economic crisis?
The financial crisis circumstances:
Some financial institutions and banks supplied some mortgage loans to families unable to pay back and without enough safeguards (process was encouraged by the American government under the law of 1977)
A hundred thousands families found themselves unable to pay back their mortgage on due time
Banks got broke, and tried to borrow money from others banks through the money market, but these other banks rejected lending money, and the number of suffering banks raised and caused a crisis in the financial activity. As a consequence, central banks put up thousands of dollars as loans to the suffering banks but things got worse
(Translated from this source)
Banks are crucial to the recovery of the economy
Consequences that led to an economic crisis:
Businesses have gone bankrupt and the closing of company operations: the fall of demand of materials, the increase of unsettled payments in the banking sector, and the massive layoff of employees
Aspects of the economic crisis:
Massive unemployment: the fall of consumer demand, increase of public spending on social subsidies and the increase of poverty
All in all, I am not an economics geek, but the current events wave interpellated me and “invited” me to be curious about it. No apparent crisis shape is visible to me till now, since leisure and entertainment are still perpetuating. The current crisis, when announced, was an event that ended huge profit organizations to increase their capital. Hopefully, it would bring back the wealth balance expected by the majority of the citizens of the world.