Economic Limbo

This whole economic crisis has caused a lot of ordinary people to believe we are in a recession. Personally, I don't believe we are in a recession, but that has less to do with the strength of the economy than something else. All the talk of the hurt in the market, and the focus on the fed rate and the dow jones are actually helping to prolong and exacerbate the crisis. The most worrisome problem in this crisis is not the credit crunch or inflation, but the fallout from the subprime mess. Because these loans got packaged, bundled, and spread around, the risk is spread all over. With this comes the caveat that NO ONE KNOWS HOW MUCH MONEY THEY CURRENTLY HAVE!!! Every week we hear of some major bank announcing write-downs of billions of dollars. However, they are basing this on the current assumed value of the securities, rather than projected values. Since no one wants to buy these securities, the bank is stuck with it. Now, if, after this crisis, we learn these securities weren't a terribly bad deal, there value would rise, prompting a possible inflationary rise.

The main thing here is that, if you don't know how much money is in your checking account, you can't pay your bills or buy groceries. This is kind of what is happening to the banks. No one will lend them money because the bank can't tell the lender what collateral they can put forward.