I’ve just picked up this week’s issue of the economist. Anyway, it’s clear that America’s economy is going downwards. Whether it will turn into a recession or not will be another debate. However, my question is what is the cause of this? For example, I know house prices are going down and car sales are going down. Why? Where did this originate from. Thanks.
Rent Back
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The Fed printed up to much money, it got invested into things that were not worth the prices people were paying, the banks made loans on fictional values that were not supportable, money was created out of those loans and now they have to contract the money supply because the loans are not being paid back.
Look up money as debt on you tube.
Also if you want to read and get a better understanding look at these two sites.
It started when the financial institutions became greedy and exploited many of the americans specifically those that are called the subprime borrowers. Subprime means higher risk market segment. so the lending rates for this market is higher thus giving financial institutions higher yield. Some entrepreneural individuals even went into a smaller scale mortgage lender and started borrowing huge amounts of money and investing it in this. Other countries dipped in to this as well. So the effect of this crisis is not limited to just USA but also other countries that was shopping for better bargains before.
so if you look at how big this has become and how many people are going to lose their homes this problem has crept in the nations financial system. In turn the gov’t had to remedied this, one they cut interest rates, printed more money, now upcoming is an economic stimulus package.
Thats how it all started.
Reckless, sub-prime lending has led to a credit crisis and a steep decline in the housing market.
The second major factor indicating a near-term recession is the sky-high price of crude oil and refined product. . .
The third factor in the current recession scenario – and the real wild card – is the continuing decline in the value of the dollar in international money markets caused by our Iraq blunder and the Federal Reserve–generated oversupply of dollars.