In 2007, the ongoing once-in-a-century financial crisis has seriously impacted the development of the United States, causing the subsequent Great Recession. What was the major factor that causes this recession? The financial crisis, triggered by American subprime mortgage crisis in August 2007, has gradually turned into a great recession. The central area of crisis is unquestionably Wall Street. Investment banks in Wall Street collapsed along with the recession Therefore, the subprime mortgage crisis, also known as “mortgage meltdown” is the immediate cause of the recession.
1)All of the severe crisis in 2007 began with long-term accumulation of deficit spending. In order to recover and stimulate the economy from the Great Depression of 1930, , …show more content…
The interest rates showed in the graph dropped from 6.5% at the beginning of 2001 to 1% in 2003. The reason is that the market motivation was not enough since the consumers were not excited in buying goods. In order to stimulate the economy, the government lowered the interest rates, so people took their savings out of banks because they were gaining less money. After this process, people invested their money in market and loaning more with a low interest rate. However, the interest rates started to rise. Until 2006, From 2003 to 2006, the interest rates raised back from 1% to 5.25%. The extreme increase in interest rates burdened the homebuyers with all of the loans they needed to replay. Most of the poor credit borrowers broke the contract since they were not able to pay this huge amount of money back. The mortgage became useless and worthless for banks. The investment banks did not have the money for investors who bought their bonds and eventually declared bankrupt protection. The entire economic system in Wall Street collapsed, leading to what was called Financial Crisis. This serial crisis brought the United States into the Great
1)All of the severe crisis in 2007 began with long-term accumulation of deficit spending. In order to recover and stimulate the economy from the Great Depression of 1930, , …show more content…
The interest rates showed in the graph dropped from 6.5% at the beginning of 2001 to 1% in 2003. The reason is that the market motivation was not enough since the consumers were not excited in buying goods. In order to stimulate the economy, the government lowered the interest rates, so people took their savings out of banks because they were gaining less money. After this process, people invested their money in market and loaning more with a low interest rate. However, the interest rates started to rise. Until 2006, From 2003 to 2006, the interest rates raised back from 1% to 5.25%. The extreme increase in interest rates burdened the homebuyers with all of the loans they needed to replay. Most of the poor credit borrowers broke the contract since they were not able to pay this huge amount of money back. The mortgage became useless and worthless for banks. The investment banks did not have the money for investors who bought their bonds and eventually declared bankrupt protection. The entire economic system in Wall Street collapsed, leading to what was called Financial Crisis. This serial crisis brought the United States into the Great