World Finacial Crisis - Impact in the American Economy - Term Paper Example

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World Finacial Crisis - Impact in the American Economy

From the year 2006 the delinquency rate on the home loan has increased and it got severe in the year 2007 because the Federal Reserve has started to increase the interest rates. The house loan where the debtors have to pay floating rate interest they were in problem. So the increase of bad loans led to the failure of the mortgage lenders mainly the banks. Because of the complexity of the financial products the investors and the banks didn’t know the actual size of the losses. As a result the liquidity of the market became less and the lending decrease, as a result the credit crunch has begun. The other reasons for the financial crisis are the borrowing of the households which were beyond their means, poor lending standards taken by the financial institutions, more over the counter transactions, more reliance on short term debts and the credit rating agencies failure to assess the risk. In the era of globalization the financial crisis of world’s strongest economy also affected the economy of the other countries. In September 2008 Lehmann Brothers was bankrupted and the financial crisis taken place. The report is an attempt to assess the impact on the American economy due to the world financial crisis. This report would find out the GDP growth rate, the changes in the value of dollar, the sector wise impact and the consequent problems caused by the crisis. ...Show more

Summary

The main cause of the financial crisis of 2007-09 was the housing market of U.S. From the decade of 1990s policy of financial deregulation was taken by the U.S. government. The monetary policy became loose in 2002-2005. From the year 2006 the delinquency rate on the home loan has increased and it got severe in the year 2007 because the Federal Reserve has started to increase the interest rates…
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