A Tale of Two Countries’ Economic Peril

Failed banks. Unemployment. Bankruptcies. Dismal situations even individually, but when they all happen at the same time different countries, it becomes a global disaster. It’s what both the United States and the United Kingdom (along with several other countries) are going through right now.

The US recently announced a recession that began last year. Though the UK hasn’t announced a textbook definition of a recession, the makings of a recession are there.

Let’s take a look at each country’s economic environment.

Bank Failures

The US experienced its largest bank failure ever – that of Washington Mutual, a mortgage lender that was valued at $307 billion. To date, 22 banks have failed in the United States in 2008.

The UK had a similar situation when HBOS, its biggest mortgage lender was taken over. Luckily, both countries have a mechanism in place to help consumers recoup their money in the event of a bank failure. In the UK, the Financial Services Compensation Scheme insures bank accounts up to £50,000, a little more than $73,000. In the US, the Federal Deposit Insurance Corporation (FDIC) insured deposits for $250,000 (slightly more than £170,000).

Consumers in both countries should check their deposit account balances to make sure they do not exceed the limits.

Unemployment

Both the US and the UK are experiencing record unemployment levels. The UK unemployment rate has hit a nine-year high while the US rate hit a fifteen-year high.

The US has unemployment insurance that typically allows the jobless to receive up to half their salaries for a maximum of 26 weeks. A recent law extended the benefit period for up to 39 weeks.

Similarly, the UK has a job seekers allowance payable for up to 26 weeks for unemployed individuals.

Bankruptcy

Personal bankruptcies in each country are also on the rise. UK bankruptcies increased by 8.8% last quarter, while US bankruptcies increased by 18.2%.

The financial situation in both countries is expected to get worse before it gets better. Some experts speculate the UK jobless number could reach 2 million by 2010.