Beginning in late 2006, Americans began to hear news of a weakening real estate market and the expected collapse of the sub-prime lending market. More currently the news is reporting that the American economy in general is in trouble and we are headed for a recession. Most of the reports on the American economy go back to the sub-prime lending market and the increase in sub-prime delinquencies and foreclosures as the reason for the decline in our economy. Many say that, as a result of the collapse of the sub-prime market, companies have been forced into bankruptcy, the housing market has collapsed, and the American economy has suffered. But can this one market be blamed for the current state of the American economy, or are the other factors which have caused the economy to pull back significantly? This paper is intended to look at the possible causes of America's current economic crisis and to determine whether the sub-prime lending was the main reason for the problems plaguing America today.
Since the economy weakened beginning in early 2007, fingers have been pointed many different possible causes - first to the sub-prime lending market, with lenders selling unaffordable loans to unsuspecting borrowers and offering inflated loans to borrowers who would never be able to pay them back, to the bust of the housing bubble, to the government for keeping interest rates low and allowing Americans to "free spend" for too long, and finally to the American people for letting their free-spending habits put the U.S. dollar in a weak position against the rest of the world.
The issue that has received the most criticism is the sub-prime lending market that was a hugely popular ...
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...mortgage vehicles such as sub-prime loans are desired by the American consumer, they will be available. But, for consumer free will to be successful, the consumer must show self-control and planful action, otherwise consumer decision making is impaired. Secondly, I believe it is the responsibility of the government to limit the nation's reliance on foreign investment. As of April 25, 2008, the total U.S. federal debt was approximately $9.5 trillion, which averages out to $31,100 per U.S. resident. The government needs to stop looking at the trees and look at the forest - meaning stop taking steps to keep America's economy on an upswing at the expense of our reliance on foreign cash. Until Americans and their government stop spending and start savings, even though our situation may seem improved, it is simply a house of cards, ready to tumble with the smallest wind.
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