The global crisis

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“May you live in interesting times” was the phrase that kept going through my mind during my recent trip to Italy. There we were—a group of Canadian and American folk on a wonderful fall holiday. We had been chatting about our mutual upcoming elections and wondering where each of our countries was heading concerning health care, peacekeeping and the environment. These speculations were quickly overshadowed by the economic crisis and the $700 billion bailout issue which became the ongoing message on CNN, our only news source from North America.

William C. Dudley, executive vice president of the Federal Reserve Bank used the title “May You Live in Interesting Times” to address his remarks at the Federal Reserve Bank of Chicago’s 44th Annual Conference on Bank Structure and Competition, May 2008. (He had applied the same title the year before in his New York remarks.) He said he had understood that the saying referred to an ancient Chinese proverb or curse, but that in fact, the expression is a Western invention. He went on to say that while this phrase might not be the genuine article, it is, nevertheless, an apt way to characterize the current situation: “During the past eight months, the financial sector as a whole has been trying to shed risk and to hold more liquid collateral. This is a very difficult task for the system to accomplish easily or quickly for two reasons. First, the financial sector, outside of the commercial banking system, is several times bigger than the banking system. So, with some hyperbole, you are, in essence, trying to pour an ocean through a thimble. Second, this process of de-leveraging tends to push down asset prices for less liquid assets. The decline in asset prices generates losses for financial institutions. Capital is depleted, increasing the pressure on balance sheets.”

Evidently, we had been living in interesting times for a while and not really aware of it. The financiers had known of course. The very wealthy had likely been on the alert. But what about us regular folk! How would we be affected by the global money crisis?

Over the years, I have come to realize that there is a whole lot of stuff I know little about. What I do know is that if you spend more money than you have coming in, you will dig yourself into a deep hole that will become too difficult to climb out of. Credit is something that is good to have in an emergency; credit is not something to over use and misuse. Credit cards are far too easy to obtain. Some are referring to this period as a wake-up call. We have become a culture of frivolous consumers. We have to learn how to exercise restraint. And if need be, we have to recognize when to request financial planning advice.

Thinking back to my magnificent tour of Italy, we knew we were privileged! We knew so many people in each of our countries would never have the opportunity to blow all this money for a couple of weeks of travel and accommodation and food and drinks and gifts. I expect that some of us wondered if we would ever have that opportunity again. How could we possibly predict where the economy is heading? One thing is for certain: We have little alternative but to place our confidence in the leaders we have chosen to rule our land wisely and make the best decisions for our future.

Organizations: Federal Reserve Bank of Chicago

Geographic location: Italy, North America, New York

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