Mar 18, 2009

The Credit Crisis Explained

So, apparently the economy is in a "recession".

Now, I know enough about what is going on in the United States there to understand that it does not really affect me. In fact, it someways, is quite good for my personal situation. However, a lot of people seem to not understand what is going on, and that ignorance has led to fear. So, in order to help you understand what exactly happened, please watch this video.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

How Does/Will This Affect Me?

As the video explains, the credit crisis in the states has resulted in two primary consequences. First, housing prices has dropped. This does not really mean anything to us up here in Canada, because our housing market is quite separated from the United States. Economically we are closely tied, so the value of homes may drop as well, but not nearly to the same extent. Only a few people are losing their homes (as far as I am aware), and most people who owned their house were planning on staying in it anyways. The dip in the housing market will only affect those who were already planning on purchasing or selling real estate within the next year or so. After that, things should be back to normal.

The good news is that for those of us that are renting, the rental market (at least in North Vancouver) has dropped significantly over the last 8-12 months, meaning that I can now afford more home for less money!

The second consequence from the credit crisis is one of the more publicized areas of effect. The stock market has taken a bit of a tumble. You may have heard of this "Dow" figure dropping. The Dow is merely an indication of how well the stock market is doing, and currently, it is not doing so well. A lot of people have invested money into the stock market because historically it earns a high interest rate. Unfortunately, because of the dip in the market, some people have lost around 40% of their portfolio. For example, a person would have bought 1000 shares of Stock A over the past five years. Each month, they would get a statement saying what their 1000 shares were worth. This number would slowly increase, telling them that if they wanted to, they could then sell those shares for a profit, the point of investing.

At the moment, those same investors still have 1000 shares of Stock A, but that stock is worth much less than it used to be. This is a cause for concern only if that person were planning on selling that stock right at this moment. Otherwise, if you look at the stock market historically, this recession, this dip in the market, is temporary, and the worth of that stock will eventually return to what it was worth a year ago, and continue to rise.

So for me, the credit crisis means nothing but opportunity. I do not own a home, nor do I have any investments. The majority of the people that I spend time with are in similar situations. If anything, this credit crisis is the birth of possibility. Housing and rental prices are down, a perfect time for me to move (which I was planning on doing anyways). Stock prices are down, meaning that I can get the same commodity at a much cheaper price. If I believe that the stock market will rise over the next five to ten years (and historically, it always has), then now would be a perfect time to start investing.

I just wish that I had some money to invest, because now would be a great time to get involved in the market. Does the credit crisis worry you? Did you lose any investments? Are you worried for the future? Sound off.


  1. Awesome video man, very informative/entertaining.

  2. I think I agree with you for the most part, but I don't think it would be a good time to buy just yet... I'm not convinced we've seen the bottom of this thing.

    And honestly, I hope this is a bit of a wakeup call for the world - infinite growth in a closed system is impossible, but we've been acting as if it's not. Will the stock market recover and rise over the next 5-10 years? Probably, but eventually it's going to hit a ceiling and something will have to give. Like I said, probably not now, but we are on a very slippery slope to depression. Just look at the comparisons between the '20's and the late '90's / early '00's, and tell me how it's that different.

    I do agree with you that our generation is the one that will benefit from this, no matter which direction it goes. We have a different sense of value (in general) than the previous generation, and the majority of the under-30 crowd has very little to lose in the way of investments. Unless the whole thing comes crashing down around our heads and unemployment really starts to rise, we should be fine. It's our parents' generation we should be worried about though...