America is the world’s financial center. Being the strongest economy, it has also currently suffered the worst financial crisis ever. Commercial and investment banks were responsible for this severe US financial crisis. They gave out hundreds of billions of dollars in the form of consumer loans and housing loans to people who were not at all capable to repay the loan. Day in, day out, bankruptcy was declared, with millions of people all across of US falling into a severe whirl of debts.
When real estate dealers saw how easy the loan was being given to people, they increased their rate of housing prices, with consumers being unable to afford housing prices, and opting for more loans. This created a terrible shift in the economy and by the year 2008, US faced the worst housing boom ever. The US economy suffered a wave of financial crisis, the repercussions of which is still present in the year 2010. The US financial crisis is currently dealing with four major issues. Sudden reduction in consumer expense, default on loans and mortgages, lending facilities by banks strictly cut down and lastly the prominent threats to short term loans between financial institutions.
Consumers gradually stopped purchases on cars, housing, properties and other loan required assets, because of this these companies suffered a great deal, and had to decrease their actual price to be able to reach out to consumers. Consumers cut down on expenditures, because they had to repay their loans and debts on time, otherwise they would declare bankruptcy at an alarming rate. Because the banks were responsible for such a mess, they immediately cut down on their lending policies, thus leaving consumers even more stranded. This cycle of banks, consumers, lenders and traders is what is currently creating this financial disaster in the US, and worldwide.
All these issues have created a recession wave in the US, the ripples of which could be felt worldwide. With the US going in financial crisis, all countries dependent on its financial power also went into recession along. Major Asian business partners had to suffer unimaginable loss, which resulted in millions of people being laid off their jobs. The US employment rate dropped down to an alarming 10% rate.
Though the recession cannot be prevented, there are ways to deal with it. The government can help by preventing working capital to collapse and protecting short term loans. When the government will play its role, financial institutions would be able to tap back into market funds and derive some profits. Enforcing strict loan policies will worsen the situation more, therefore people should be given some relaxation in their loan repayment policies and rates. These borrowers should be given a chance to repay their loan, instead of showing them the way of bankruptcy.
Right now only the US government can tackle with this recession, if they use their tools effectively.Let’s trust in a silver lining behind a dark cloud.
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