Why a credit crisis IS an economic crisis

I'll use a local (UAE) example: HSBC is a British bank that is a major player here. To buy a new car they used to require an income of $33,000. Now they've doubled the requirement to $66,000. Since income here is non-taxed that's the equivalent of saying an American would have to have an income near $100,000 to buy a new car.

Obviously, sales of new cars will drop and drop quickly.

It's not love that makes the world go round... or money for that matter. It's credit.

And if you read this you'll see that the world came close to a halt at 2PM on September 18, 2008.

Update: Denise asks,

Okay, Steve, dumb it down further for your English major friend. What does an "economic collapse" mean for me? I can't buy a car, prices would rise, but a political collapse? There would've been a run on the Capitol overthrowing the government? Looting and raping in the streets? Cannibalism?

If credit seizes up virtually all purchases for cars, houses, and even major appliances will end. (How many cars would be sold in the US if banks required a $100,000 salary?) As sales plummet millions lose their jobs. The economic crisis worsens and scared banks cut back lending even more.

Rinse and repeat and continue on a downward spiral...

Denise, you have a pretty secure job at a pretty secure company (assuming they don't get swallowed up by a bigger player). In the worse case scenario you will see your home value drop but that's probably about it. There won't be high inflation, if anything it will be deflation. You'll get great deals on things because stores with major appliances and large TV's will sell at a discount to clear their inventories.

Travel for your husband and you will become much cheaper. Already here in the Emirates hotel prices have been slashed. All the places you'd want to visit will have fewer pesky tourists with jobs so it will be much more enjoyable.

Come to think of it, you might do pretty well in an economic collapse!