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World economy is relatively related to the U.S. economy. The lecture mainly discussed about the U.S. economic situation and other big countries economic situation such as European countries and Japan.

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World economy is relatively related to the U.S. economy. The lecture mainly discussed about the U.S. economic situation and other big countries economic situation such as European countries and Japan.
It started with the U.S. subprime mortgage crisis. Basically, subprime mortgage is directly related to housing price of the U.S. that keeps decreasing from 2007. Since many people had the loan of million dollars almost same as the housing price, they could not repay the loan to the companies such as New Century Financial and AHMI because of the decreasing housing price. Default rate on subprime and prime mortgages recorded a historical high of 16.31% and 3.12% in December 2007
In fact, Subprime market is tiny related to the U.S. financial market. Since borrower’s default rate keeps increasing, loss in subprime market is also increasing. Then loss in securitized products rises and demand of international business for capital grows but demand for subprime loan decreases. From this situation, housing price is falling down and borrowers can not repay their loans. Therefore many companies and banks that invested subprime mortgage companies are in trouble and become bankrupt. It affects world economy.
Even though the U.S. subprime mortgage situation is very bad, there is still room for improvement. Since the fundamentals of the U.S. companies is relatively strong and the U.S. government throws it’s effort into disconnection between companies and subprime mortgage situation, it will not lead to economic stagnation even if the U.S. consumption of consumers is falling down by subprime mortgage.

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