The subprime mortgage crisis, the soaring costs of healthcare insurance, grumblings about the necessity of still keeping American troops in Iraq, rising food and gasoline prices – the US has all the ingredients necessary for the making of a stagflation situation, one where the markets are in recession and where inflation is rearing its ugly head.
It’s a domino effect that started with the boom in the subprime market as banks offered mortgages on the bond market to increase their earnings. With the entry of private players on the field, more and more people were allowed to buy homes without proper scrutiny of their income details and ability to repay. With a fee for each mortgage sold on the bond market, the banks made a killing out of the process.
Two years down the line, the first domino has started to fall – the initial low interest rate expired and most customers were hit with the new, high interest rates like a bolt from the blue. Following their continued inability to pay, the banks began their round of foreclosures. Potential buyers are losing out on new mortgages because banks are facing a liquidity crisis, and with new customers prevented from entering the real estate market, the issue takes on darker and gloomier proportions.
At the other end of the spectrum, food prices are rising steadily, mostly because of a large quantity of corn being diverted to produce bio diesel, a greener alternative to gasoline. Shooting oil prices and higher healthcare costs are causing a lack of confidence in the government among the American public and the general level of spending has decreased.
The dollar’s sharp depreciation over the past year does not augur well for the new government that’s expected to take over the reins in a year. As prices continue to rise even for essential commodities and salaries remain steady, the Federal Reserve to raise interest rates even though the economy is stagnant. A sign of stagflation?
By-line:
Sarah Scrafford is an industry critic, as well as a regular contributor on the subject of making smart money decisions. She invites your questions, comments and freelancing job inquiries at her email address: sarah.scrafford25@gmail.com.
It’s a domino effect that started with the boom in the subprime market as banks offered mortgages on the bond market to increase their earnings. With the entry of private players on the field, more and more people were allowed to buy homes without proper scrutiny of their income details and ability to repay. With a fee for each mortgage sold on the bond market, the banks made a killing out of the process.
Two years down the line, the first domino has started to fall – the initial low interest rate expired and most customers were hit with the new, high interest rates like a bolt from the blue. Following their continued inability to pay, the banks began their round of foreclosures. Potential buyers are losing out on new mortgages because banks are facing a liquidity crisis, and with new customers prevented from entering the real estate market, the issue takes on darker and gloomier proportions.
At the other end of the spectrum, food prices are rising steadily, mostly because of a large quantity of corn being diverted to produce bio diesel, a greener alternative to gasoline. Shooting oil prices and higher healthcare costs are causing a lack of confidence in the government among the American public and the general level of spending has decreased.
The dollar’s sharp depreciation over the past year does not augur well for the new government that’s expected to take over the reins in a year. As prices continue to rise even for essential commodities and salaries remain steady, the Federal Reserve to raise interest rates even though the economy is stagnant. A sign of stagflation?
By-line:
Sarah Scrafford is an industry critic, as well as a regular contributor on the subject of making smart money decisions. She invites your questions, comments and freelancing job inquiries at her email address: sarah.scrafford25@gmail.com.
beautiful blog, post very interesting, greetings from italy!
ReplyDeleteMany thanks for the recent view. Wish you great blogging time!!
Hi Dino!