Credit crisis in American economy has become much prominent which one can’t neglect anymore. Under the full glare of the globalization and industrial revolution in the international scenario, there is the higher possibility of the decreasing of the value of dollar as the world’s reserve currency due to the entry of other countries like China and Japan in the global market.

In August, the foreign central banks and governmental sectors thrashed 3.8 percent of their holdings of American debts. The steady increase in the percentage of the unemployment and housing slump have enhanced the agony and fear of the steady decline in the face value of the American dollars in the world market. However as a part of stop gap arrangement for saving such downfall, there are few investors who prefer to purchase US government sponsored bonds which are thought to be much secured bet. However this type of initiative is not able to provide the necessary backup to check the decline of the face value of American dollar and the foreign support for American dollar is on fast decreasing. It is the fact that American bonds are no longer thought to be protected platform.  This type of steady attrition has had adverse impact on the credit crisis in America. The credit rating is becoming tighter and the stock market is floating flotsam jetsam.

Therefore there is higher possibility of the steady hike in the interest rate which will enhance the rise of unemployment. Dollars will face the downfall which can’t be disowned. Therefore American markets including consumer groups will be under compulsion to opt for less expensive foreign credit. The steady entry of foreign investment and same time the currency deregulation are positive factors to boost up the stock market which generates  the steady progression of cheap capital in American market.

There are certain factors behind the present trends of the nosedive in the face value of the USD dollars in the international market which enhance the possibility of the credit crisis in America. A short analytical synopsis can be drawn to scoop out the exact scenario of the position of the credit rating and face value of American dollars in the international market.

The Federal Reserve i.e. the US central bank on 18th September decided to make the steady reduction of the interest rate of benchmark federal funds by a half percentage point that indicates the decline from 5.25. to 4.75 per cent. This type of initiative was taken to check  adverse impact on  American economy of a credit crisis . In early part of August first the credit crunch was felt after the repayment problems in the American sub-prime mortgage sector which provided backup to those borrowers who had poor credit history. This type of downfall boosted up widespread uncertainty and fear in the international market. For this particular reason there was the higher possibility of the American credit crisis in the financial sector. Again the lending sectors preferred to sell the sub-prime mortgages to the investment banking sectors, which had further packaged them into mortgaged backed securities and later these were sold to international investors.

These securities were combined with other sorts of debt and later sold as part o f collateralized debt obligations or CDOs which had impact on credit ratings that were much higher in comparison to those of the embedded debt. The ramification in July of huge losses by hedge funds which possessed sub-prime related CDOs invoked questions of CDO values. Therefore panic selling snowballed into the downfall of the CDO market with the result that the accessibility to the international credit by companies was acutely blocked.