The credit crisis in America has become very prominent and severe which can be a threat to the US economy. This type of the credit crunch in American market has boosted up the augmentation in the pace of the downfall in American house prices because the mortgage lenders preferred to check the accessibility to the borrowing and increased interest rates whereas some economists opine that the crisis can hasten the occurrence of an economic recession.

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.

Alan Greenspan, the former Federal Reserve chairman expressed his opinions in an interview with the BBC that there was the risk factor of the financial slump in America which would occur due to the risk of credit crisis in American market but he also predicted that there would be a less than 50 percent possibility of economic recession. He also stated that over-inflated asset market like the housing market of myriad developed countries would flourish in case they were allowed to make steady progression. Greenspan opined that the emergence of the credit crunch in America would strengthen the possibility of low inflation and low interest ratings.

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.