How has it impacted the global markets?
In a modern open economy, a country’s finances are often dependent on international development. Contagion is the idea that a financial crisis in one country is very likely to cause a crisis in another. Companies in a stable economy would or could be denied financing simply because another economy in the region is failing. The effects of the subprime crisis spread beyond the US and disrupted global financial markets as investors were forced to re-evaluate the risks they were taking and credit became harder to obtain. The increase in risk premiums and reduced capital liquidity global credit markets caused increased volatility in the money markets. Many economists have predicted that the full impact of the US sub-prime mortgage market fallout is yet to be felt. The threat of a recession in the US is also a factor to be considered in the coming months.
