Welcome back to my blog for this first guest blog article, written by Hans…
The title may not mean anything to you, just like it was for me, but our first guest author has clearly simplified our life, you will soon be able to write your own dissertation on the credit crisis after reading this post…
So, here we go!
The American Credit Crunch Crisis and Mauritius…
So first of all what is a credit crunch?
A credit crunch is globally defined as a reduction in credit or loans or/and a sudden rise in the cost of borrowing loans from bank that is an increase in interest payable.
We are currently affected by the Subprime Mortgage financial crisis!
What should the American Government do?
My arguments are both sided.
The first argument would be that the American Government should not intervene in this situation because we all know that America have a market economy!
The definition of a market economy is that the resources are owned and controlled by private individuals in this situation, the banking and financial institution. They created this situation themselves no one can deny that, by constantly increasing rate of interest on loans so as to maximize profits but ultimately people were not able to pay and therefore were accounted as bad debts.
So why should the Bush’s government intervene in this?
The American government doesn’t have anything to do in the business of its private.
I believe if the American Government in this, then we would witness a wave of nationalization like in the 40’s after the great depression.
We all know what would happen to the American economy if they nationalized their banking sector.
Mauritius is an example where nationalization is rather a bane than a boon; poor service, less maintenance and other non-desirable matter.
But let’s get back to our topic, the nationalization of the banking sector will create national welfare but in America, no national welfare is require, Americans want a world class service, something I believe nationalization will not give them!
Bush’s economists have also other reasons to do this. The main reason is not to save the American economy but also to prevent emerging economies such as the Russian economy and the Chinese economy from becoming the world leaders.
The Americans Senators are fools also because they know if they vote the bail out, the American will cut in public spending, tax will increase. Not only Americans will have to pay these dues but also other people.
Yes, globally the world economy will suffer.
We can’t deny that we depend much on America.
How many countries export their products to America?
Yes with an increase in taxes, Americans purchasing power will decrease; therefore demand will decrease resulting into excess in supply and ultimately a recession.
Now looking at the political aspect, the Senators may lose theirs voters if they vote the bail out to help the fat cats (the banks).
Let’s take a common example
Company XYZ have a current account in bank ABC. But due to the credit crunch, the Bank ABC must declare bankruptcy. That would definitely affect the company XYZ in term of cash to spend on its expenditure, raw materials or any other expenses.
Now we have assumed that there is only one company in America and one bank, but in reality it is not so, how many companies’ current accounts will be affected. Till now the current credit crunch has caused a loss of 1 Trillion dollars. Now with the closing down of so many banks, how many people will become redundant and how many families will suffer economically and also emotionally?
The whole American economy will crash and even the world economy because almost all countries depend on America for exports and imports. So the bail out of so many billion dollars to save the fat cats from bankruptcy would definitely help.
Is that the business of the American government to intervene in what economists called the free market ideology? Is that the role of the American government to save the fat cats at the expense of THE people?
How will it affect us Mauritians
If you are fanatic of the PTR or of our dear Doctor in political science R. Sithanen, I don’t advise to read this part! Frankly how can he say that Mauritius won’t be affected by the credit crunch? Every country is being affected and Mauritius would not be of any exception!
- Our tourist industry will be affected.
Let’s not forget the fact that our economy depends much on this particular pillar.
A good percentage of the tourists come from American and UK. So if ever the bail out was to be voted, then taxes would increase, So Americans would spend much on basic necessities like food or petrol not on a voyage to our dream Island.
- Mauritius have signed a major business deals with the Americans mainly for textile deals. So the textile industry will be affected.
That is Americans will buy less and spend more on basic necessities again.
- I also see a possible link between the credit crunch and the petrol prices. Investors need money to buy petrol and sell petrol and a good source of income would be taking a loan from the bank.
But like I said a credit crunch is a sudden rise in the cost of borrowing in terms of interest.
So the investor apply for the loan and get it but guess what he has to pay a higher rate of interest!
So he increases the price and who have to pay? Us the customers!
I didn’t see how I did notice that the credit crunch would affect us and our Doctor did not!