The subprime crisis has been caused due to, among other reasons, a lax monetary policy of the US Federal Reserve. The US economy, in fact, has started its southward journey following this crisis. Low interest rates have resulted in the rise in asset prices, especially of housing. Thanks to the ingenious but highly questionable securitization mechanism, the US has been burdened with a spiral of debt that has started unwinding now. The assumption that housing prices will always go up is wrong after all.

The US, the wealthiest nation with a population of over 300 million, is in an economic mess. It is the biggest borrower and importer of the world. Its citizens are guilty of profligacy, with negative saving rate and huge borrowing under wealth effect. The US economy has twin deficits. Its current account deficit is over 6.5% and its fiscal deficit is over 4.4% of its Gross Domestic Product (GDP). It is facing prospects of a long recession following the subprime crisis.

The recent subprime crisis, the consequence of subprime lending, which deteriorated in quality following the fall in housing prices and rise in interest rate, has landed the US economy in a recessionary phase. Analysts blame the lax monetary policy of the US Fed for this crisis.

The Federal Open Market Committee (FOMC) decides the benchmark Federal Funds rate periodically. An analysis of the changes in the interest rates from January 1, 2000 to April 30, 2008, covering the first 100 months of the new millennium has been furnished hereunder. This period has witnessed the dot com bubble and bust, the housing bubble followed by the recent subprime crisis, besides the September 11, 2001 terrorist attacks.

Professional Banker Magazine, US Economy, Monetary Policy, Gross Domestic Product, GDP, Subprime Crisis, Federal Open Market Committee, Global Financial Markets, Lax Monetary Policy, Swiss Bank, United Bank of Switzerland, Gross Domestic Products, GDP, Macroeconomic Management.