Foreclosures In USA Affects Global Economy
The long tentacles of foreclosures in USA are now reaching out to affect the global economy. It is spreading with no signs of retreat according to the International Monetary Fund. Reporting on the global financial situation as in April IMF states that that the international financial markets continued to be brittle with indications of risks being high on the agenda.
It is a year now since the foreclosure crisis has made its presence felt in USA.. The financial institutions have bared their losses but the story has not ended there – the infection is spreading to other types of credit.
The International Monetary Fund is an institution consisting of 185 nations. It stated, “Credit quality across many loan classes has begun to deteriorate with declining house prices and slowing economic growth.”
Till about a year ago the foreclosure crisis was mainly thrashing the borrowers. Slowly foreclosures began to strangle the lenders in the country. They had eaten too much and the huge number of foreclosures led to their suffering from indigestion. But America is a big brother to all countries across the globe. There is a saying that when USA sneezes the others catch a cold. All those who had eaten at the same foreclosure table of woes are now showing symptoms of discomfort and economic ill health. Banks are being pressurized to raise extra capital despite the depletion of huge bank stocks. This has “increased the likelihood of a negative interaction between banking system adjustment and the real economy” according to the latest report from Global Financial Stability.
At a news conference Jaime Caruana of IMF said, “the downside risks outlined in the April GFSR appear to be materializing, leading to a negative feedback loop between the financial system and the broader economy.”
According to IMF calculations the banks and other financial bodies have written off $400 billion in mortgage investments. There is no sign of improvement with innumerable foreclosures waiting to be auctioned and signs that millions more will become delinquent. The call of the hour is to stem the tide of foreclosures in USA. The stumbling of Fannie Mae and Freddie Mac has further eroded confidence.
Banks are tightening credit and selling assets. In the first quarter of this year the private sector borrowing of US dropped by 5.2%. This level has not been recorded since the year of the last recession – 2001.
