The economic situation in the
world right now may look like it is a repeat of 2008 but if you look closely
there are a few signs that make this situation a little more promising.
Examples are that credit bubbles are not as big as they were and private debt has
decreased a good amount since 2008. The most important sign, however, is
something that we just learned about in class. Banks have started to rework
their balance sheets. They are reworking them so that they have more capital
and reserves. Another decisive difference is that the losses from this economic
downturn are from government debt not because of housing loans. The 2008
recession happened because banks were not able to predict such a drop in
housing prices. When this happened, they took a beating because of all the
loans out there that were not being paid off. The government did its job by
supporting all of the banks by giving them money to help compensate for their
losses. Now, the government is in extreme debt and it is very visible. Doing
the same thing that we did in 2008 by just boosting capital is not a very good
decision. The government using public money to stimulate banks in our current
economic state just does not make much sense. Also, it would be a risky
maneuver because if a country happened to default, it would be a devastating
blow to the already very fragile U.S. economy. In other words, larger capital
will not gain the trust back of investors. The real solution to the problem is
much different than just blindly throwing money at the banks hoping this will
boost the economy. The solution is that the government needs to “neutralize”
the debt problems in Europe by making sure that the countries will pay off
their debt eventually. The government needs to help stop the crisis over there
and make it more manageable for countries to pay off their debts. The author of
the article finishes his statement by concluding his argument. He says during
the last crisis in 2008, governments around the world supported the banks by
just giving them money hoping this would help them recover from the extreme
decrease in housing prices which hurt the banks terribly. This method did not
recover the economy quickly at all. It also gave governments a lot more debt
which put them in a more volatile state and really hurt citizens. To decrease
the possibility of another large crisis, possibly makers need to be the ones
doing the work. They need to find a way for countries to pay off their debts
which will be the only way to revamp the economy. Solving the debt crisis is
the solution not blindly giving money to the banks.
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