Macro Economics week 2

The U.S real estate crisis had a huge global effect, there is no doubt about it. But the question is how this could happen?
The crisis hit stock markets and stocks around the world started to sink. The president of ECB Jean-Claude Trichet urged investors to keep cool to prevent world’s banks running out of cash.
This was easier said than done. ECB, the U.S Federal Reserve and Japan´s central bank injected billions of euros to help banks from bankruptcy. This was the largest amount of money injected since the terrorist attacks of September 11, 2001.
This caused more nervousness on the markets and cash suddenly turn scarce. Evan tough Jean-Claude Trichet tried to keep investors calm and was speaking about normalization of the market.

Stock prices started to fall and investors found out that some of its assets was invested in the U.S real estate market. Because of the globalization of today where investments are made in international markets led the crisis going global.

This led to a shortage in cash and the central banks had to do something. The money market where banks lend money from each other was threaded and its departments became nervous. A system that had been working for years was now questioned if they could really trust each other and pay back the funds they were borrowing.
Central banks tried to prevent the system from breaking down but changing the real reason for the collapse the fact that U.S crisis had made money cheap was hard to adjust.
By injecting cash into the money market worked as a quick help but I think in the long run it made damage by running out of liquidity.

/Sofia Gustafsson