Insight Into How Our Economy Has Influence Worldwide

In an article that was published in the UK Telegraph August 21^, 2007, Financial Analyst, Abrose Evans-Pritchard made some very interesting observations. Pritchard notes that, “root cause of this credit bubble - now popped - the “blame” lies with Asian, European and Anglo Saxon central banks. They created this mess, if that is what we now face. It was they - in effect governments - who intervened in countless complex ways to push down the price of global credit to levels that warped behaviour, as the Bank for International Settlements (BIS) has repeatedly noted. By setting the price of money too low, they encouraged debt and punished savings.” He is referring to the fact that 90% of the mortgages in question are based upon the LIBOR index. (This became a popular index for mortgage funds because it was extraordinarily low (1.00% 06/03), however when the 3-yr adjustment to all of these mortgages came due, it was not as popular (5.70% 07/06)). Pritchard basically states that the government run Central Bank(s) artificially lowered the Index which caused the Index to be used in the creation of millions of mortgage loans. Now the Central Bank(s) have changed policies that have allowed the Index to rise to the level it should have always been. This drastic change (4.70%) came at the time that these millions of mortgage interest rates where scheduled to change… and the rest is history. 

It is truly amazing how financial markets world-wide can affect one another. Online news sources from across Europe feature headlines about the U.S. markets and the housing/mortgage industry mess.

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