blog 2

Through to the subprime there are already losses more than 150 $ billion, which is a gigantic amount and frights almost the whole economic world, because America is still the main economy with the world currency, the dollar, and the countries are connected more or less with it.

How could the immobile crisis affect the economy of America and Europa?

After the first collapse in Banks due to the subprime crises the banks couldn’t trust each other anymore, because nobody knew which bank was affected of the immobile crises and which one not. Therefore they didn’t lend money to each other anymore which disturb the interbank system and the liquidity of the banks decreased which had a bad consequence for the financial and economic world.

In the present global world the banks are connected with each other e.g. the IKB ( Deutsche Industrie Bank), Dresdener Zentral Bank, UBS Zürich, NIBC Dutch Bank were the first banks in Europe which had incredible losses ( $ 382 million the UBS)due to the American credit crunch, therefore the banks in Europe had the same problem. They couldn’t trust each other anymore and their liquidity decreased as well.

In fact of the inability to lend money the economic growth, which was a permanent in the last 6 years, would be decrease, because e.g. small or big companies can not borrow money for their business so easy anymore, so they are not very liquid, too, what decreasing their operating activities and in fact their Revenues. This affects the GDP, because the companies are the basics in the economy. In America most afflicted economic sectors are furniture, construction, domestic help and gardener companies, which are affiliated to housing.

To rescue the banks or even to make them more liquidity the Federal Reserve pumped $41 billions into the bank market in November 2007. The same did the Bank of England in December 2007. It gave 20 billion pounds within 3 month to the banks.

Due to pumping money into the market, results an increasing of inflation, which weaken the dollar (actually on the low of 1.52 Euro) and increase the price of food and oil like in the last several month. A low dollar and a strong Euro is bad for the American but it is also bad for the European, because America is an important partner for our trade business and with a low dollar they are not able to buy products as much as before, therefore our exports will decrease and this influence our economy, our job market. Additional the Euro is coupled to the Dollar like almost all currencies in the world e.g. Japan, China. In fact that the Dollar is the world currency countries have there savings for international activities and bad cessions in Dollar, because international activities such as trade are constituent in today’s global business world.

At present the people are afraid of a new big recession that is why they are save money in America, which is not good because people don’t spend much money anymore and this affect a decrease in revenues and this push the unemployment and support the recession that will become true if the government and the banks can not stop it.

In Europe the Governments say that there will be no recession for Europe to calm the people, but the equity market reflect the insecure which is dominant at the present.

All together it is amazing how this at the beginning little immobile crisis in America could develop to a dredit crunch which affected the whole financing world and hopefully not the whole economic world.