Can The Global Debt Cause Another Financial Crisis?

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Global debt has reached new heights according to recent news reports. S&P is out with a new study arguing that the amount of global debt has increased by over 50% since the Great Recession. This number has created understandable worry among a large number of economically-minded individuals who are concerned about the global economy’s ability to handle massive quantities of debt. But there is also concern about what countries do with the debt that they accumulate. Using debt properly, as well as keeping it low, needs to be the main priority of developed nations around the world.

Debt and financial crises

The relationship between debt and financial crises is not direct. It is true that debt at certain levels cannot be sustained. Large interest payments lead to a considerable amount of stress on a country’s economy. Countries do not have the money that they need to pay for infrastructure or social programs. If countries are placed in a difficult position, they may not have the extra cash needed to pay creditors regularly.

There is the looming chance of a default like the one that harmed Greece during the Great Recession. It is possible that countries will have their credit rating downgraded as well. Countries with lower credit ratings will be unable to borrow as cheaply as before and their budgets will take a hit as a result.

Major Defaults

Major defaults could certainly cause a worldwide financial crisis. But at the same time, some countries can use small amounts of debt to do an extraordinary amount of good. Debt needs to increase in times of economic depression and hardship. Government debt can then be used to put people back to work and provide a general amount of economic stimulus.

Then, governments need to work hard to pay off at least a portion of that debt in times of economic prosperity. It is clear that much of the world is reaching that period now. International leaders need to be devising taxation and spending plans that can start to reduce the world’s debts and deficits before another recession occurs and they need to rise again.

What needs to happen

Countries have to gain control of their deficits during periods of sustained economic growth such as this one. They should raise taxes on their citizens and, if that is politically impossible, they should step up enforcement and eliminate as many loopholes as possible. Countries around the world are starving for revenue. They have hundreds of billions of dollars stored away in tax shelters that are completely immune from the influence of countries. There are many steps that the nations of the world can take the reduce the influence of these tax havens.

Currency Structure

In addition, countries need to look closely at their currency structures. Some currencies like the euro need to become more flexible in order to help smaller European countries pay off their massive deficits. Finally, countries have to be careful with their massive spending projects. They should primarily spend money in order to build up their own countries and the potential of their citizens. Debt should only be taken on to pay for the poor or to rebuild the roads and bridges that countries need to thrive.

Global debt may not be the catalyst to another financial crisis. There were almost seven decades without a major global recession and there is little indication that there will be another one anytime soon. But global debt can still become a major problem for the country and its economy. Global debt could mean the difference between a flourishing global economy and one that is constantly teetering on the brink of budget cuts and collapse.

4 Ways Rising Stocks Can Affect The Housing Market

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The stocks markets have been registering lots of volatility over the years, and this scares many investors a lot. This kind of panic among investors all around is bound to have great effects on to other industries too. Although there aren’t any complaints in the housing market about the same, they fear these effects are going to reach all the way deep into real estate investment too. Some things in the stock market would affect the housing market directly.

Financial Institution’s Interests And Lending Rates

The stock and the housing markets get into direct relationship through the credit people have to take up when buying homes. As most people wouldn’t afford full amounts at once, they have to pay a portion then approach their banks to cater for the rest through the credit program. Depending on the investment time and the health in domestic economies, the interest rates in these can either go up or down. The good and safe situation is when there is low volatility. Banks at this point have confidence in the borrowers and their capability to repay their loans and hence, they lower the interest rates. The high volatility in the markets on the other hand only proves uncertainty in the market; hence the banks increase their interest rates. All these changes are brought about by the increase or lowering of the stock market.

Encourage Investors In The Housing Market

There is another key correlation between the stock market volatility to an investor’s decision in investing. When the figures at the stock market go up, they encourage investors and more so people that would love to buy a home also do so then. When these figures fall, they make investors pessimistic and fearful of investing then. This is a good example of how stocks directly affect the housing market. An investor buying a home when the stock market indexes are going up can be taken as an asset that would even earn you more cash if sold off but the same bought during the low stock season feels like a liability. As the above effects take place in property buyers, there is a significant amount of such effects in the sellers too. By studying the stock markets, they would know when bets to advertise and sell their properties and when to hold back and wait. The banks as well determine their interest rates on mortgages by studying the stock market.

Demand And Supply Of The Houses Don’t Balance

The variation in the stock markets might create what investors call a housing bubble. This is a situation where builders keep building as many houses as they can, but the buyer’s demand keeps falling. Even though in falling stock markets, the interest rates are normally going up, there could be a remedy to all of this. When there are so many unsold properties compared to the number of prospective buyers, the lenders in this situation would have to change their policies and offer better terms to attract buyers. If the number of prospective buyers was higher than the properties in the market, the interest rates would have to go up to maximize the profits.

Huge Down Payments Required From The Prospective Property Buyers

When there is high volatility in the stock markets, the buyers are forced to pay up huge down payments before the financiers can approve the buyer’s mortgage request. This could be because of the low-interest rates getting charged at that time. However, the increase in interest rates discourages the taking of mortgage loans by the housing market investors. In this situation, many would rather look for funding from other sources, for instance, selling their assets. The stock market also affects this situation as well. In such a situation, the value of the property drops due to bad economic times and hence making it all hard again to sell assets and come up with enough equity to buy an investment property.

As the reasons above clearly state, it is true to say stock markets determine every move in the housing market industry. The prospective buyers would want to wait until the stocks re to his/her favor so that to make a profitable investment. The seller and the general property owners also study the market to make sure they also make profits after selling off their houses. The bank s and the financial institutions study the stocks as well so that to determine the amount of interest to install on any particular mortgage loan. They study the stocks also to determine the capability of the buyers to repay all their loans.