Global Economic Crisis & Financial Crisis

The root cause of the economic and financial crisis was the United States mortgage market selling sub-prime mortgages to large numbers of consumers with inadequate incomes. These mortgages were bundled into securitized paper investments, and sold by Wall Street to major financial institutions across the globe.

When the mortgages became non-performing, these securitized assets were transformed into toxic acid, infecting the entire worldwide financial system. The ensuing global economic and financial crisis has destroyed trust in banks and borrowers in all the major economies of the world. Depositors are withdrawing their money from uninsured and even insured accounts. Coinciding with this massive run on the world’s banks, these financial institutions are no longer lending capital to each other, reflected in the rising LIBOR short term inter-bank loan rates.

Capital is fleeing, and the global credit crunch ensuing has frozen the arteries of a global economy based on easy, cheap credit. As corporations are being denied normal flows of credit, a massive global economic crisis is transforming the financial meltdown on Wall Street into an economic disaster on Main Street. This evolving global and financial crisis and credit crunch will afflict developed and developing economies, leading to massive unemployment, demand destruction and price deflation among many pivotal asset classes

The attempts by the Federal Reserve Bank and Treasury Department in the United States to inject liquidity into the credit market, along with intervention by central banks in many other developed economies, is proving ineffective in responding to the global economic crisis. A growing number of economists are speculating that the global economic crisis will lead to a worldwide recession of such intensity; it may rival the Great Depression of the 1930’s in its calamitous economic devastation.