What We Can Learn from Any Financial Crisis

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The financial crisis of 2008 has been called the worst recession since the Great Depression. It touched all segments of society, cost trillions and affected everyone around the globe. There were various causes for the meltdown but in hindsight there were two main factors that led to this financial crisis: an unbridled increase in debt from corporations and people alike to take advantage of low interest rates over a period of decades, and a generation who did not want to save their money. Some people are still suffering from job losses, home foreclosures, or lost pensions from as little as a decade ago when they should be enjoying retirement. The government became involved but because it’s such an emotional issue people have difficulty understanding how it all went wrong.

1. The meltdown of 2008 was not unlike other financial crises.

The only way to comprehend how the hit rock bottom financially crossword of 2008 was not unlike other financial crises is to understand that the root cause of a crisis is a human emotion or attitude and if it exists now it will exist in a similar manner in the future. In fact, economic cycles are cyclical over time and this one will happen again. If one looks at the economy and recession since 1950, it has been on an upswing since 1982 and each downturn has been relatively mild and short-lived. This is because in each cycle, we learn from our mistakes. The financial crisis of 2007-2008 was caused by a lack of knowledge about how the economy and financial world work.

2. Humans are greedy creatures, and when given power to accumulate wealth they will use it to its fullest extent.

It is human nature to want more and more wealth so it is not surprising that when given the chance to accumulate wealth, people took full advantage of this opportunity. In fact, those who got rich during the boom years used their newfound wealth not only for access to money but also the power that control gave them over others. They became more powerful and influential than they ever had before. In the current economic downturn, the wealthy have lost their riches but have managed to retain their power over everyone else.

3. Debt accumulation becomes a habit, and once the habit is set in motion it can be difficult to reverse it.

People who accumulated large amounts of debt are people who are adverse to saving money so they borrowed as much money as they did to build up wealth. Everyone started borrowing money as there was so much available on the market and again this is human nature, we want what we don’t have but when it’s made available for us to get we find a way to obtain it. We borrowed money from credit cards, mortgages, lines of credit etc… The housing crisis was caused by lax lending standards that were followed by even less careful borrowers. They borrowed money to buy houses they couldn’t afford, allowing them to borrow more money to pay off their loans.

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4. The unemployment rate is an indicator of the health of the economy and it is going to continue to rise until jobs are created.

In 2008, over 6% of the labor force was unemployed which means that many people have no place to go and are not receiving unemployment benefits or food stamps (because they ran out of money). Many people who lost their jobs have not been able to find a job and so their lives are at a stand-still. Many have lost their homes, investments and pensions all in the same month and have nothing to look forward to. At some point, the Federal Reserve will need to take action by raising interest rates and increasing the money supply in order to make new loans available on the market. This puts off people who cannot afford personal loans because they are unable to source any more credit card debt.

5. People chase after false wealth so they can feel a sense of accomplishment even if they’re not materially better off than before.

Most people think that wealth is measured by how much stuff you own or how much money you keep under your mattress but in many ways, it seems that many people are confused about what wealth actually is. The reason why many people accumulated so much debt was that they felt compelled to buy things that would reflect their success. The accumulation of debt was spurred by a desire to achieve the next rung on the wealth ladder, even if it meant incurring tens of thousands of dollars in credit card bills and having no way of paying them off. It is a lot easier to earn more than to cut back.

Summary:

There are many reasons for the financial meltdown of 2008 and it is important to understand that there will be more financial crises in the future. In the past, people have learned from previous economic downturns but if many of the same mistakes are repeated then there could be another recession within a few years.

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