A Coming 2012 Economic Collapse And Its Implications

A Coming 2012 Economic Collapse And Its Implications

Friday, March 16th, 2012

The majority of growing concerns, which some fear may lead to a global economic collapse, began with the financial crisis (often called the Global Financial Crisis, shortened to GFC) that began in 2007. Economists speculate that many of the causes were interdependent on one another, resulting in increased difficulty of handling them all, either separately or combined. However, beyond the housing crisis that led to the financial recession of 2008, many believe an unavoidable global economic catastrophe looms on the horizon.

Perhaps the most damaging factor in the first years of the crisis for American families came from the United States “housing bubble”. Because the average price of an American home increased by 124% between 1996 and 2007, many homeowners were encouraged to refinance their homes with adjustable-rate mortgages and lower interest rates. Adjustable-rate mortgages allowed a lower-than average interest rate for a specific period of time, followed by an above-average interest rate thereafter. This plan was attractive to homeowners because it allowed them more of their money during the predetermined time period, and extra time to analyze their finances and adjust them accordingly to pay the higher rates when the time came. However, most American families had much trouble financing their homes in this way, and the result was a never-before-seen wave of home foreclosures in 2007 and 2008. Foreclosure proceedings neared 1.3 million in 2007, an increase of almost 80% from 2006, and 2.3 million in 2008, an 81% increase from 2007.

Currently in the U. S., the trade gap is a prominent topic in discussing our economic crisis. From December 2011 to January of this year, our trade deficit increased from $50.4 billion to $52.6 billion, a 4.3% expansion. According to MarketWatch, January’s deficit was the highest of any month’s since October of 2008, when our nation believed we were o the brink of an economic disaster. Economists claim the deficit-increase was driven by increased imports of food, autos, and capital goods.

Many have drawn parallels between American states and European countries. Italy, like California, has allowed important natural resources to be squandered by “bad governance”; Germany, like Wall Street, is the continent’s financial center; and Greece, they say, is poor and living off of richer neighbors, sort of like an old Mississippi. Currently in Europe, the most pressing issue is whether or not the euro will survive as common currency. Many economists are fearing dreadful consequences if any major European nations suddenly decided to abandon the euro; primarily because they would simultaneously abandon multi-million-dollar debts to other countries, creating large loopholes in European finances. It would also lead to the bankruptcy of many large companies if lending were to collapse because of the loopholes.

Unlike the U. S. And most European nations, China has a more restricted, and less dependent (on other countries) financial system; as a result, China is less affected – although certainly not unaffected – by the economic crisis than other countries around the world. Their current problem is handling the country’s growth rate in terms of their economy; the growing Chinese population correlates with their expanding labor force, and economists claim that China’s growth rate must not drop below 9%, in any financial quarter, in order to accommodate it. China’s economic growth has already slowed however to 7.5% in the first quarter of 2012, and some economists are predicting even slower growth and a hard landing in the near future.

If any society were to collapse from an economic crisis, a large number of factors would come into play. Personal finance is, of course, one of the most important; how individual people manage their expenses to the best of their ability will collectively shape how our society, overall, handles personal income. On the opposite end, corporate finance is another important factor. We have seen quite a few financial bailouts in the last few years resulting from loss of profits; many big banks, and also the automobile industry in Michigan, have gone this route. If a society collapsed from an economic crisis, it would depend on how EVERYONE handles their money, whether they are individuals, family-providers, or large corporations.

As our problems persist, many are worried about what is called a “double-dip” recession; this is usually defined as a second recession that occurs just after the first seems to be ending. We are seeing this in the current economic state after the “Great Recession” from December of 2007 to July of 2009. According to a Gallup poll, 26% of Americans believe that the original recession never ended, and as many as 29% currently consider our current state to be a depression. Many polled agree that the current state of the global economy is fragile and unhealthy. Despite a strong rally and growing stock market in early 2012, signs are beginning to point to a troubling future. Perhaps the strongest indicator of a double-dip recession is inflation; recent economic predictions expect increased prices for many of our everyday products, from meat and sugar to coffee and gasoline. The economic crisis in Europe and slowing growth in China further points to an impending global economic depression.

Additionally, some are in fear of even more than a second recession; is it possible that 2012 is the year in which we enter a new depression? A global Great Depression that lasts years. Unemployment is hardly improving; our trade deficit continues to get worse; our national debt cannot seem to stop climbing; government spending is, accordingly, through the roof; home foreclosures are still steadily increasing; and the list goes on. We are simply not sure if this will be the year of a new economic collapse, no matter how many statistical analyses may point to it. Only time will tell.

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