[Guest post] The American Credit Crunch Crisis and Mauritius

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!

  1. 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.
  2. 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.
  3. 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!

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  • Nice Article.

    Tushals last blog post : Top Love songs.

  • I thought Credit Krunch was a… breakfast cereal! LOL πŸ˜€

    To more serious things, rather than the credit crunch, it’s recession (whatever that may mean!??) that is hitting the US economy (& to some extent the global economy).

    As for tourist industry being affected, Mauritius should not be severely affected, if the MTPA decides to act, by promoting Mauritius in countries like India, China or Australia. πŸ™‚

    carrotmadman6s last blog post : The Dark Knight

  • Hans

    Nicely formated and well arranged couldn’t do better myself! Well I am ready to answer any questions!

    So if anyone have any question!

    So go go go! πŸ˜›

    Also my points are proven by facts. Mainly about the effects of the credit crunch in Mauritius. We have already noted a small fall in the arrivals of tourists in Mauritius.

    Now looking at OUR stock exchange that is SEM, all the trends are negative. MCB,MUA and SBM, which are all, companies operating in the finance sector, their trends were decreasing.

    I demonstrate this by yet another example:

    MCB is a company that does well generally in the stock exchange. But since the start of this year, its share price have decrease from Rs 180 to Rs 157, a drastic fall. The credit crunch did not start this year by the way, it started in late October last year. Now looking at Yesterday’s amount of shares that were sold, Guess it?

    17,175 shares of Rs 2,643,940! :O

    I hope our Doctor R.Sithanen treat this patient fast and real fast!

  • Mike

    To be fair, the Herr Doktor S. , said on TV today that tourism would be affected. So what is the solution? Try to transfer our overdrafts to other locations? I guess it would not make any difference if the domino effect kicks in? Oh well, stop the world I want to get off !

  • yashi

    The US Govt will save the banks, so that the economy is fine and running, no-one can benefit from banks collapsing. You have put too much emphasis on the fact that the fat cats are being saved at the expense of the customers. It;s not completely true, business runs a country, not govts. If the economy slows down, the customers, the population will suffer. The US Govt has to help the banks, and it will nationalise some banks, it will own part of the banks, so why would they want to increase taxes? They don’t need get any money back, they are just buying assets in a way. Even if they do increase the taxes, at the end of the day, the population will be safe from a collapse of the economy. And also, the govt could also be partly to blame for this crisis due to a lack of regulation. I don’t think there should be such a huge fuss about the credit crunch, markets are on the mend already, this time next year, the markets would have recovered fully. The UK,who are a bigger tourist client than the US are not that affected, and are known to have a very good regulatory body. Mauritius will be affected because of the actions of its politicians, not because of the credit crunch. I mean Mauritius will feel some of the ripple effect, but we aren’t linked very closely with US banks, petrol prices actually went down in the last few weeks, but is on the rise again, and that is totally understandable.

    It’s very easy to blame one or two parties and see customers as the eternal victims. It’s not always the case. We all work in a closed unit. Banks need us as much as we need them. The economy and the govt needs them as much as the banks need them. We could go on about this. Rest assured, the financial world and world govts have enough resources to cope with anything these days. The only thing which could let us down is the selfish motives of certain people in power.

  • mo ti post 1 ti article lor ha moisi πŸ™‚
    http://dakshinee.wordpress.com/2008/09/18/interestingthings/
    credit crisis…
    yaps mauritius will b affected, it’s obvious coz of the global effects!!

    Dakss last blog post : Finding Nemo..

  • Hans

    @ Yashi

    You brought a good argument there. But what I wanted to point out in this article is that is it fair to tax consumers at the expenses of some greedy entrepreneur?

    Other than that, I will have to agree with you that it was because of the free market ideology of America that they are facing such a situation today.

    I hope that they would learn from their mistakes!

  • Very nice article, it clearly states every reason why we should worry

    heads up hans

    Saileshs last blog post : MBC is it a TV station or politics station?

  • AT first fight mo ti coir to p blog lor chocolat crunch la WLOL πŸ˜€ Nice article.

  • yashi

    [re=25794]Hans[/re]:

    Fair enough. I forgot to congratulate you on a well-written article before going on a marathon of a post lol

    I would say it would be fair to spend tax money on rescuing a few banks if that means the economy and ultimately the customers will benefit from it. But of course, there is an ethical issue, why should taxpayers’ money go towards helping some corporate money machine which has collapsed due to its own greed? I think, it’s in the interest of everybody that the economy runs smoothly… But I still think the banks are to blame for this as well as the government for not implementing tighter regulations and not heeding the advices of people like Warren Buffett when they were predicting this crisis.

    I think the only thing we can do now would be to ensure we don’t have another credit squeeze. Now we know what can cause it and what can prevent it from happening.