Oct 30, 2008

Economic Crisis: Behind Subprime Crisis

You all may have listen to subprime crisis in America, and you may also aware of the affect subprime crisis has caused. But subprime crisis has come. Paul Curgman (Novel prize winner) has discussed about it.

According to him, global origin of our current economic crisis was laid out by Ben Bernanke in 2005 itself. Currently he is a chairman of the Federal Reserve. He raised question, why USA, world largest economy, is borrowing heavily from international market instead of lending. They have said that in 1997, third-world economics hit by financial crisis started accumulating huge precautionary hoards of overseas assets. So those third-world countries became from destination of capital to source of capital. And due to depth and sophistication of Americas financial market all money started to come here (USA).

United States of America was not suited to make use of the world's surplus funds. Directly or indirectly, capital flowing into America from global investors ended up financing a housing-and-credit bubble that has now burst, with painful consequences. One advantage of America's situation is that foreign debts are in Americas own currency. It means suppose India has taken one billion dollar one years back, so have to pay Rs 1 billion multiplied by 40 at that time. But now India has to pay Rs 1 billion multiplied by 48, because Rupee value has depreciated.

Now, according to Paul Curgman, real sin of Federal Reserve and Bush administration was the failure to exercise adult supervision?

What is subprime crisis? How it caused financial mayhem?