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The crisis and the credit markets

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The consequences of the global financial crisis, do not seem to have been at all and the proof is the expectation that exists in markets around the different sectors that may be susceptible to collapse in coming months.

Many analysts believe that the actions being taken by governments in relation to the economic recovery plans of the countries can only cover part of the real sector deficits begin to perceive.

Perhaps one of the most clearly affected the automotive industry, where large companies like General Motors has already announced the reduction of 10,000 jobs in 2009 and Chrysler, which temporarily closed 4 of its production facilities, because the fall in demand for vehicles.

Given this, some economies have sought to remedy the problem with bailouts and debt securities issues on the international market, such is the case of Brazil, which has just 1,000 raise million U.S. dollars and 25 million in Asian markets, by issuing ten-year bond whose yield was around 6.127% per annum.

This situation reflects the liquidity of the market is moving towards economies with growth potential despite the crisis, which does not necessarily apply to other, sure to start issuing debt to finance their domestic needs. These economies may look to Colombia, Panama, Chile and Venezuela, carrying some debt issues in the international market in the coming months.

is obvious that the shortage of available credit, will deepen the As financial institutions require greater amounts of money first to support public deposits, which led to panic may be pulling the financial system and secondly the loss of market value of investments and long-term .

In this sense, one of the largest banking concerns at this time lies in credit card debt, because with the massive wave of unemployment and excess consumption in previous years that generated high debts that have accumulated in time, the industry could suffer another collapse, having to supply with funds the non-payment of these debts.

Impact end of the crisis will depend largely on market reactions and their duration may be much greater than originally expected, since everything depends on the setting to achieve economies and the nature of the social impact they have. The higher the impact, the crisis may be extended although the numbers of companies start to be positive.

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What more could we expect from this crisis?

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Many analysts are more concerned with the variants that could take the current financial crisis than by the consequences it may have on financial markets, in fact, some believe that is too broad and that the strong effects observed, such as layoffs , reduced operations and others are part of a corporate strategy of cost reduction and not a real answer to the negative consequences.

Moreover, several analysts say is possible that this crisis is escalating rate, ie that will cracking different levels of conflict to the extent that the reaction of market participants is more or less negative. For example, those who hold this theory say that if the market reaction to the housing crisis had not been so strong, it is possible that the crisis in the securitization markets would not have occurred with the intensity he had and investment banks may had not collapsed the way they did.

The truth is that the situation has become worse and quite possibly drag on other sectors, and that has created a kind of collective fear about the possible future attacks. Perhaps worth noting that elements may still be affected and what elements might bring about change. United States was primarily the generator of the crisis and its consequences are mainly exacerbated by several factors, such as:

1. A sustained consumer culture, supported by the import of goods and services. What has made the balance of payments deficit is the economy (in simple terms that need to finance the economy to support the level of expenditure.

However, rising raw material prices and the overall increase production costs has led to higher prices that have still beaten more real wage and thus resulted in a reduction of sales and business profitability.

addition, the crisis has caused a deactivation of the credit market, caused by fear of a new banking debacle and the deterioration of payment capacity of individuals.

2. A lack of market regulation, in terms of investor protection and the free convertibility of products. Not that the derivatives market is negative, the problem is to be used deliberately without any control, as Enron and Parmalat had shown the world what happens when these instruments are used unscrupulously, obviously was not well learned lesson.

3. The strengthening of other economies. They have diverted funds from emerging countries to Europe and Asia, generating investment opportunities that have further weakened the U.S. economy and losses have provided space in the international arena.

is obvious that the current situation leads to wonder whether the world economy is in the ability to adjust to the internal problems of the United States, which ultimately must be resolved to reactivate its economy and thereby clear up the overall impact they bring.

Taking this into account, We can therefore say that the overall impact of the crisis on the assumption that the U.S. economy failed to improve could be among others:

1. The generation of subsequent crises, such as credit cards, productive sectors, employment, investment and retirement funds, insurance, remittances, and others. That could worsen the economic growth outlook for 2009, forcing countries to make decisions about budget cuts, devaluation and restrictions.

2. The creation of a climate of distrust credit, very harmful to both borrowers and to lenders as the former does not acquire debt for fear of being affected by rate increases, changes in market conditions and other and the latter simply considered too risky credit profile, given the current situation.

3. The collapse of emerging economies, as their dependence on commodity exports and foreign investment, can affect your cash flows by adjusting growth expectations down by caution and decline more developed markets.

4. Increasing global poverty, because of the greater number of families that would drastically cut their income by massive layoffs caused by business or simply for the voluntary reduction of salary, in order to safeguard the profits of companies.

Although they seem very drastic these situations, the truth is that they depend heavily on how companies and countries in general assume the uncertainty, if take all pessimistic, many of the comments above may fall short in scope but if you take a more focused, then the consequences may be less radical.

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