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.

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.

This type of premonition of the economic recession was considered to be an important political matter for the Bush administration. In his annual report State of the Union address in January, Bush said that the American economic infrastructure would be in full bloom. On the contrary, his opponent party took strong exception to his expectation pointing out that due to the low rates of taxation and higher tendency towards the government’s high expenditure would minimize the possibility of the enhancement of the country’s economic infrastructure. They also lambasted Bush government’s wrong decision and the poor statecraft.  American trade deficit touched a record US$763.3 billion in 2006, an increase of 6.5 percent over the last year. This is the updated statistic done by the US Census bureau.

On the other hand America’s trade deficit with China touched US$232.5 billion in 2006 and it was the source of growing trade confrontation between the two nations. Furthermore, the adverse impact of the American blitzkrieg operation in Iraq and Afghanistan brought the US economic infrastructure on the verge of the destruction and downfall. This type of the military expenditure has enhanced the possibility of the American credit crisis in the global market. According to Greenspan the former Federal Reserve chairman, there is higher possibility of the ending of low interest rate and low inflation due the US credit crisis.

In this connection, it is also amply explicit that overseas and foreign investors occupy over $4.4 trillion in US debt in the shape of bonds and securities. In case they sell at least 25 percent of that total sum, then the US would certainly feel the adverse impact of hyper-inflation. The foreigners are very much enthusiastic to purchase Treasuries and equities which would enhance gobbling up huge $800 billion existing account deficit of America and this would certainly increase the possibility of demand for keeping the dollar artificially high. However, just like the sub-prime mortgage owner whose teaser rate has abruptly ended, America at present faces the brunt of severe adjustment of higher payments with the possibility of discretionary income to enhance the indulgence.

The wrong initiatives taken by the then Bush Administrative machinery to generate $3 trillion unnecessary expenditure encouraged national debt within six years. This type of drastic measures taken by Bush administration produced the severe impact on the credit crisis in America. American financial sector divulged fresh symbols of depression and distress due to the palpability of the credit crisis which afflicted international financial market since the great depression of 1930.

This type of severe financial depression in the American history forced the then hon’ble American president  Franklin D. Roosevelt to take drastic steps to introduce New Deal in the American economy. New Deal is a series of emergency economic procedures which were designed and programmed to retaliate the steady progression of unemployment, dejobbing, hunger and homelessness which occurred owing to the sudden occurrence of the financial slump. It was thought to be vital factor to strengthen the chance of widespread of fascism in countries like Nazi Germany which enhanced the outbreak of second world war. In July 1944, just before the occurrence of the second world war, the UN monetary and financial conferences were held at Bretton Woods in New Hampshire. In this connection, the General Agreement on Tariffsand Trade of GATT and the IMF came into picture.

There is another historical anecdote to strengthen the possibility of the sudden decline of dollar value with the decision of American government to prevent the convertibility of the American dollars to the value of an ounce of gold. This type of dollar crisis minimized the value of the American currency which boosted up the huge increase in the cost of oil as the Organization of Petroleum Exporting Countries or OPEC made readjustment of the prices to get the clear reflection of the dollar’s depreciation.

The European Central Bank or ECB pumped 95 billion pound or in the form of US$1.00=0.7311 euros as at Aug. 10, 2007 into the EU banking sector to offer additional liquidity.  Again in October 2006, Jeffrey Skilling, the then chief executive of Enron Corp., was awarded 24 year and four month life imprisonment in the wake of his conviction and wrong doing in May due to the commitment of fraudulence, insider trading and subversion. Again in the year of 2005 in the March, Bernie Ebbers, the previous chief executive of the telecommunication company namely WorldCom Inc. was also accused of orchestrating and forging an US$11 billion which snowballed into severest insolvency in American history. According to the UN report published in January, 2005 under the headline World Economic Situation and Prospects 2005 claims that due to anomalies and imbalance in the international economic infrastructure there will be the higher possibility of the palpable threat to the stability of the economy.

Therefore the American government should take drastic steps to lower the government expenditure and at the same time augment the savings percentage to rescue the country from the doldrums of the credit crunch. In August 2002, according to the revised reports by American department of commerce, the American economy made inroad into the state of recession for the first three quarters of 2001.

In the year of 1980, President Ronald Reagan enhanced a series of aggressive free market strategies which are often called Reaganomics in which the government was compelled to minimize the public expenditure, taxes, regulation with the inclusion of inflation. Furthermore, during the realm of President Bill Clinton, the American economy suffered the backlash of the dot com stock market crunch in which there was the steady possibility of a razor sharp recession in the value of technology based stocks as they were considered to be overvalued at the time of assessment done by conventional criteria such as profitability including company asset holdings. There is no denying the fact this type of dot com stock market crisis snowballed into the total insolvency among the business community with the brightest possibility of the loss of the thousand jobs in the country.

There is no denying the fact this type of credit crunch has given severe setback to the country’s economic infrastructure and its steady progression. Last but not the least, in October 2001, the House of Representative sanctioned the approval to a US$100 billion economic stimulus plan which has been designed and well programmed to give impetus to the American economy with the series of blitzkrieg invasions of some militancy outfits of al-Qaida network in New York and Washington DC in September, 2001.

Standard & Poor’s, the credit rating agency, did forecast by claiming that there would be more hazards in future for investment banks which could watch their banking and trading profits downfall by 70%. Furthermore, in a research work, S&P’s credit analyst named Nick Hill stated that the revenue for Wall Street institutions could be at attrition level as much as 47% which is little bit worse in comparison to the 31% nosedive in the second part of 1998 when the markets were given a jolt by an financial crunch in Asia and monetary devaluation in Russia. Therefore these factors own the responsibility to enhance the ongoing possibility of the credit crisis in the American economy. Steve Akers of liquidators Grant Thornton, stated that assets in Britain and America need to be kept intact and protected  due to financial crunch. According to the Greenwich Associates, the consultancy, hedge funds are no longer considered to be an integral part of the market for the fixed-income products.

In this context the Bush administration was informed beforehand by the Bank of International Settlement, the World Bank, the International Monetary Fund and the European Central Bank regarding their wrong economic policies which would enhance the occurrence of credit crisis in the country. However it is a matter of grave concern that the then Bush administrative machinery connived at the warning.

The poor governance and ineffective economic policies are some of the vital factors which are responsible for the downfall of the country’s economy which nurtures the possibility of the credit crisis in America.  American GDP is set at 70 percent consumer expenditure. That means that wages are bound to augment crossing the rate of inflation or the economic infrastructure won’t grow. If someone has the ardent wish to have a strong economy wages are bound to grow at pace with the productivity so that workers are able to purchase the products they give rise to. Both Greenspan and Bush administration are well concerned regarding this effect but they opted for keeping it hidden behind any easy credit smokescreen with the sole purpose of weakening the dollar. They took such decision to offshore myriad industries and outsource three million manufacturing employment schemes. They also took such wrong decision to strengthen illegal war maintaining the flow of $800 billion existing account deficit into American equities and Treasuries.

 It is a matter of grave concern that after the transfer of political power to Bush administration in 2000 there has been no particular improvement which can energize the country’s economy solving the problem of credit crisis. There is an ever expansion of personal and corporate debt energized by a structured finance system that metamorphoses liability or sub-prime loans into securities increasing their value by way of leveraging.

Gone are those gala days when building of the sub-prime ownership society with the inclusion of the supply of the funds for the upgradation of the defense and military and funding the markets were reliant on the backbone of the foreign creditors. The problems took place after the decision of Greenspan to drop interest rates to 1 percent in 2003 over a year to inject trillions of low interest credit into the economy. Though this enhanced the possibility of the prosperity, it also made the inflation of a huge equity bubble in the housing trading which has been brought on the verge of destruction and downfall. On the other hand the destruction in the real estate is almost too gigantic to guess. The mortgage bubble is approximately pegged at $5.5 trillion, however the prices have starting to fall. For this particular reason two millions homeowners will be rendered homeless.

There are a number o f hedge funds which are filled with billions of dollars in mortgage backed securities are trying to survive. In this connection the survey given by Professor Robert Schiller at Yale University establishes the fact that home prices can face the downfall as much as 50 percent in few hotter markets. There are other factors which have some roles to play in this context. A stock market crunch in unison with deflation period  forced the housing prices to descend 90 percent just like during the period between 1928 and 1933.