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submitted: Apr 1st 2009 | by: Dave Saltonstall | Total views: 41 | Word Count: 368 |

There are a number of reasons why the global economic crisis is taking place. From not enough regulation, to people not being responsible for their decisions. Most people were exercising poor debt management, from carrying too much debt to not having a realistic plan to pay it off. Family’s were using their homes as their personal ATM, taking the money out of their home, and using the money for other purposes.

Since home prices were going up, this was a win-win for everyone, from people, to lenders, and for the economy in general. However, when the banking system and other parts of the economy began to fail, families were simply tapped out. They couldn’t go back and take more money out of their homes because the value of their home dropped so much that it caused millions of people to be “underwater” on their loan. When a homeowner is “underwater” on their loan, it means that they owe more money on the home than the value is worth. It is fairly common to be “underwater” on a car loan, but for a home it is extremely unusual, and caused damage through out the economy.

Automakers were affected worldwide, because shoppers no longer could use their home as ATM’s to pay for the car purchase. It hurt retailers, because consumers were forced to cut back on their spending in order to make their most basic bills. Even those retailers that were still doing decent were noticing that they were selling more store brand items, and less expensive items in general. While the scope of the global economic crisis was so large that it would have been nearly impossible not to feel the effects, some things could have made it less painful.

If people were smarter at debt management, had a better plan for paying their debts off, and didn’t use their homes so much as their personal ATM’s, the scope and the severity of the crisis would have been curbed. In addition, savings rates were in decline when the economy was down, so people had much less of a margin error than in previous years, when the savings rate was much higher.

About the Author

Dave Saltonstall has around 25 years experience in the finance market -- over this time he has built up an idea of reputable and trustworthy sources. He recommends you to debtfree.org.uk for debt management resolution issues.

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