What you think of the subprime crisis and how it impacts todays Essay

What you think of the subprime crisis and how it impacts todays economy - Essay Example In obvious circumstances, the lenders mortgaged the loan security to other investors in various esoteric combinations. The adverse effects of the subprime crisis lead to hike in interest rates, which forces the Fed to raise rates to combat inflation, which has to be incurred by the common man. Economies of developing countries classified as emerging markets, are still seen by developed country fund managers as risky propositions. So the flight to safety will see some funds pull out of developing countries. This could lead to a stock markets slide in these economies, loss of confidence and slowdown of the real economy. The other source of disruption is construction-led slowdown in the US. This could hit developing economies that export a lot to the US. The subprime crisis also places downward pressure on economic growth, because fewer or more expensive loans decrease investment by businesses and consumer spending, which drive the economy. A separate but related dynamic is the downturn in the housing market, where a surplus inventory of homes has resulted in a significant decline in new home construction and housing prices in many areas. This also places downward pressure on growth. Crisis has caused panic in financial markets and encouraged investors to take their money out of risky mortgage bonds and shaky equities and put it into commodities as "stores of value". Most of the recent increases in global food prices have been the result of speculation and the collapse in the value of the US dollar which is now at Indian Rupees 38.62 per dollar. This crisis has an immense effect on the national stock markets, where the fluctuations in the market prices and shares of the corporations do create an element of doubt in the stakeholders mind and thus leading to kiosk among them. The market value chips down and which tends the financial institutions to come forward and ask for their loans