Stemming from the rupture of the housing bubble in the United States, the crisis swiftly proliferated across the globe. Following the terrorist attacks of September 11, 2001, the US Federal Reserve aimed to revive the economy by reducing the interest rate to 1% over the next 2-3 years. Prior to the attacks, interest rates in the United States ranged between 5-6% from 1995 to 2000.
However, dissatisfaction among depositors with the low 1% returns led them to seek alternative investment avenues. At this juncture, the housing sector emerged as an attractive option due to steadily rising prices. Capitalizing on the low interest rates, numerous borrowers took out loans to purchase or construct homes. Even those who had never considered loans began to benefit from the low interest costs, initiating a surge in home buying and construction. Consequently, housing prices soared, and the inflation in the housing market spilled over into other commodities. Between 2004 and 2006, the US Federal Reserve had to implement a series of interest rate hikes to combat inflation.
These costly loans acted as a hindrance to growth, initially impacting investment, followed by a decline in employment and income. The inability of millions of unemployed individuals to repay their loans triggered defaults, resulting in losses for banks and financial institutions. This domino effect first affected small banks, followed by larger ones, ultimately engulfing financial institutions worldwide.
Denne historien er fra February 1 - 29, 2024-utgaven av BUSINESS ECONOMICS.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent ? Logg på
Denne historien er fra February 1 - 29, 2024-utgaven av BUSINESS ECONOMICS.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent? Logg på
Elections 2024: Illusion & Reality
Whenever there is an election, we find the politicians speaking in hyperboles – and possibly, 2024 Lok Sabha has reached a crest.
Government initiatives aim to bolster rubber cultivation and innovation
Rubber tree plantation has seen significant growth in India, thanks to robust government oversight and favorable weather conditions.
Macron speaks on Europe's economic fragility
Many heads of state often speak on topics over which they have little control or vested interest.
Indian industries stand to benefit in raising of tariff on Chinese imports to the US
A delicate balance of power and influence exists between the United States of America and China.
Chabahar Port Agreement: Part of India's strategic and economic vision for Central Asia and Europe
On May 13, India and Iran signed a 10-year contract to operate the Chabahar port in Iran.
It is quite incredible to see things of interest happen with the blessings of the divine trio
Swamiji once said, “The wind of divine grace is always blowing. You just need to spread your sail.
The battle for sustainability: Earth Day's message of 'Planet vs. Plastics
World Earth Day, observed annually on April 22 worldwide, commemorates contemporary environmental advancements and promotes awareness of the imperative to conserve Earth and its resources.
Mother Teresa International Award 2024: Celebrating Humanity and Service
The Mother Teresa International Award, a prestigious honor recognizing individuals dedicated to serving humanity, will host its 2024 ceremony in Dubai, United Arab Emirates.
Can India get out of the middle income trap?
In the mid-1980s, international financial institutions moved away from calling their member countries as poor and rich countries, or as developed and less developed countries.
How is India's falling household savings rate worrisome for its development?
There has been a sharp reduction in the household net financial savings rate in 2022-23, leading to an overall decline in the financial savings rate.