Credit Crunch/Recession - Worst Case Scenarios?

Question

It's constantly in the financial news now about how the credit crunch is going to affect us all in a bad way and perhaps even lead to a recession in the economy, but what does this actually mean for your average joe, (worst case scenario).

As far as i can see the worst that could happen is that it becomes a bit harder to get a loan or a mortgage and house prices will come down. But most people in britain want them to come down because they've been too high for years! Why are the media portraying this as a bad thing. If it becomes harder to get a high mortage, surely the negative effects of that will be cancelled out by falling house prices?

Other than these points how could a recession/credit crunch possibly harm you're average joe?

Could it be likely to cause deflation, (if thats the opposite of inflation?) Even if salaries drop on average, again that will surely cancel the effects out?

As long as i have the money to go where I want, and buy what i want, I can't see a problem

Answer 1

The concerns being expressed mainly relate to consumer confidence and withdrawal of equity (re-mortgaging).

If you become worried about where the money is coming from you may well stop spending so much .. currently a lot of people run up huge credit card debts because they are thinking "that's OK, my house is going up faster than I'm spending, I'll always be able to pay off the debt by re-mortgaging" ..

.. so if house prices stop rising (or even start going DOWN in value), people can't pay off their debts and either stop spending first or go bankrupt (and then stop spending) ..

Plainly the first to be affected is the Credit Card companies (Barclaycard etc) = bankrupt clients = no money, non-spending clients = no money ..

Next is all the retailers .. people will focus only on buying food and other essentials .. no customers = no business, no business = no jobs ... the 'posh shops' will be the first to go.. (Tesco Basics range increased sales, Sainsbury 'Feel the Difference' range reduced sales) .. people will put off all the 'big' purchases .. when they do buy they will go for something cheaper .. more Fords will be sold, less BMW's ..

Now as an individual you might not care = if you have access to funds you will be able to buy some good bargains (BMW's at "closing down" sale prices) however if you work in non-core industry (eg. at a BMW Dealership) you might start worrying about your future ..

Answer 2

You should know by now, that our media will continue to exaggerate the financial market situation on and on, until they force the market into recession, by simply forcing people to believe that we are going into a recession and if you push it hard enough people will eventually believe it.

Answer 3

It'll affect rich people - so I'm not worried.