Subprime Mortgage Crisis - Essay Example

Precisely if the market goes down it results in a ripple effect that brings down most of the markets in the world. It was believed that when a commodity was produced there would be demand for the product. But the whole scenario of the market changed upside down, markets crashing; unemployment was increasing, rise in inflation, prices were falling and eventually factories being closed.

It was believed that markets correct themselves but it was proven wrong by the great depression. Maynard Keynes's theory holds good, according to his theory fall in investment spending might result in a fall in consumption spending. Part II US economy is the world's largest and powerful economy, a slight change in its markets would result in a ripple effect throughout the world markets. The US has proven itself as the land of opportunities for many people around the globe. Like many of the economies, the US has seen the Booms and Busts of the markets that brought happiness in good times and sorrow in bad times.

In the 1920's the US went through the great depression and slowly and steadily markets stabilized and experts called this the Business Cycle. In the late 1990s due to the Bubble Burst, the markets crashed and inconsequent years it bounced back. Now the markets again crashed due to the subprime mortgage and credit crisis and are considered a greater crisis than the great depression. The Keynes theory holds good for the current US economy. According to Keynes's theory, consumer spending will come down if there is a decrease in investment spending.

If you spend less you buy less and might result in balancing the market thus giving scope for improvement in the market. Whatever the market scenario is, the common man prays that this kind of crisis won't come again and steal all the wealth they accumulated and hopes the good days are ahead.