A lot of people have been shocked by a variety of aspects of the current credit/banking crisis and the recessionary conditions that it seems to have created or exhasterbated. I have been warning about the collapse of the US housing and mortgage markets and the potential for a banking collapse since i first heard, a few years back, that over 20% of all US mortgages were Interest only VAR loans. I never imagined that a) it would affect the rest of the world as much as it had and b) that financial firms in Europe were part of this AAA rated crapfest, or c) that people in Iceland, Hungary and other countries in Europe were taking out mortgages in foreign currency that could destroy them financially. I never imagined that Europeans would attempt or even be allowed to make such risky financial descisions, maybe more than in the US, but i was wrong.
Strangely enough, many things that have helped build the productivity of the last 25 years have combined to increase the speed at which economic changes occur and how extreme they are. In the 1970s it took weeks or even months for the automakers to notice that sales were dropping and to cut back production. Today the number are integrated so that if sales drop today, you can cancel a shift of production tomorrow. Ideas of maximizing your business by aggressively using your cash flow to expand your business, lead to businesses with no capital reserves. printers, car dealers, small manufacturers came to rely on credit to ensure they can pay their bills from day to day, so they could maximize their pay. That strategy and it’s associated tactics worked great in strong market. Today it appears that all markets are even more rapidly pulling back as the world sees slacking demand.
The combination of technology, management innovation and rapid communications have combined to allow the various players in the economy to react instantly. This rapid reaction has allowed the economy to turn around from boom to bust in a few short months as word of crisis cause business and consumers to start hoarding cash instead of spending it. We should get used to the speed at which the Economic “bi-polarism” occurs.
