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 What are the likely consequences of the Financial Sector troubles? (2)

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What are the likely consequences of the Financial Sector troubles?

And what caused this crisis?

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3 points

Very hard to tell, and it depends a lot on consumer confidence. If people start getting freaked out and withdrawing money from everything, then more banks could fail causing a chain reaction. If our currency is destabilized too much, other countries would move away from it in world trade, further weakening it. That could cause a mass rush away from the dollar, throwing world markets into upheaval.

Probably more likely is that people are shaken up for a while, there are deals done to keep wall street alive, and in the long term, the situation stabilizes and keeps growing. Drops in stock markets tend to be a leading indicator of overall economy, so we'll probably have a slowdown for at least a bit. They also tend to clean out overenthusiasm and irrational pricing, so after the drop, we'll regain footing when people start behaving rationally again and buying when valuations are reasonable.

Supporting Evidence: stock market as leading predictor (www.econ.ilstu.edu)

This country is headed for a disaster of biblical proportions. Old Testament, real wrath of God, type stuff. Fire and brimstone coming down from the skies! Rivers and seas boiling! Forty years of darkness! Earthquakes, volcanoes... The dead rising from the grave! Human sacrifice, dogs and cats living together... mass hysteria!

But I've been wrong before so....