Q: I took Macroeconomics last semester and am taking Microeconomics this semester. between these two classes i have come to the realization that this actually DOES affect me and my immediate surroundings. Will the Economy bounce back ? If yes When ? Or Will we fall into another depression? If yes When ? Is my local bank (Pennstar) in danger ? I know the FDIC insures most accounts up to $100K so im not too worried about losing my money. More of a convience thing.
A: When I took Macro the emphasis was placed on the interplay between inflation, the money supply and economic growth, and almost nothing was mention about the effects of banking system, which is what the current crisis is about. There was also almost nothing about the historical economy prior to WWII.We have not had problems like this since 1930's so what you are learning doesn't explain much. If you look at this graph of inflation/deflation, with "banking panics" marked, from 1774 to the present it will give you a better idea of what is now going on and why the fed is acting, http://www.visualizingeconomics.com/2008/05/27/us-inflation-annual-percent-change-1774-2007/ If what the fed is doing works we will not have a depression, but it will take several more months for the financial system to return to normal, and we will probably have a recession or at least a slow economy with job growth less than the the growth in the labor force which means rising unemployment. When banks fail customers are usually just moved to a take over bank with only a minor inconvenience, but too be on the safe side having a second bank account of or extra cash on hand is probably a wise precaution.
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