The U.S. subprime mortgage crisis is a new type of financial crisis. The inherent mechanism is the lack of transparency of financial products and information asymmetry. Financial risks are gradually transferred and amplified to investors.

These risks spread from the housing market to the credit market and capital market, from the financial field to the economic field, and spread from the United States to the world through investment channels and capital channels.

Most opinions in the international economic community believe that although the subprime mortgage crisis has had a certain impact on the world economy, it cannot be judged based on this that it will trigger a global economic crisis.

The IMF recently stated that the turbulent situation in the international financial market is still "under control."

However, a few people believe that the subprime mortgage crisis may lead to a reversal of the current world economic prosperity cycle.

Soros believes that the subprime mortgage crisis is the most serious financial crisis in 60 years since World War II and the end of the era of the US dollar as the world currency.

Martin Wolf, a critic of the British Financial Times, regarded the subprime mortgage crisis as a crisis of the Anglo-Saxon financial system.

American economist Roubini believes that the Federal Reserve's successive interest rate cuts will be difficult to prevent the U.S. economy from falling into recession.

Based on the analysis of the information at hand, the author believes that the possibility of a world economic recession exists. Since the subprime mortgage crisis has not yet bottomed out, its uncertainty risks are more worthy of vigilance, and its impact on the global economy and finance cannot be underestimated.

Excess Liquidity and the Subprime Mortgage Crisis After four consecutive years of rapid growth, the world economy showed signs of adjustment in 2007. The pressure of slowing economic growth and the threat of inflation simultaneously cast a shadow on the prospects of the world economy.

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Flooding liquidity has promoted the growth of the world economy and also helped increase asset prices in global commodity and financial markets.

Rising prices have caused inflation to spread around the world; excessive liquidity has amplified the "confidence" of global investors and led to the expansion of global credit.

Fundamentally, the root cause of the subprime mortgage crisis lies in the time lag of monetary tightening policy and global excess liquidity.

Monetary Tightening Policy Lag After the "9·11" incident, the U.S. economic growth slowed down.

In order to stimulate economic growth, the Federal Reserve cut interest rates 13 times in a row, to 1% each time.

Although this move has stimulated economic growth, its side effects cannot be ignored.

On the one hand, low real interest rates have expanded domestic credit, especially real estate loans, and increased the supply of U.S. dollars; on the other hand, low interest rates have devalued the U.S. dollar, laying the foundation for global liquidity flooding.

In fact, the real cause of the subprime mortgage crisis lies in the time lag effect of US monetary tightening policy.

In response to rising housing prices and other signs of economic overheating, the Federal Reserve raised interest rates 17 times in a row, raising the benchmark interest rate from 1% to 5.25%.

As U.S. interest rates continue to rise, the cumulative effects of the policy have gradually accumulated, making customers with poor credit ratings unable to afford the loan burden.

In order to avoid a further increase in bad debts, lending institutions tightened their monetary policy, worsening the financial situation of loan customers. The intensified bad debts were transmitted to the global financial market and investors through the securitization chain, eventually triggering a sudden and large-scale subprime mortgage crisis.

Global Excess Liquidity The reason for the unusually severe impact of the crisis is global excess liquidity.

The imbalance of the global economy, the depreciation of the US dollar, low interest rates and the extensive use of financial derivatives are the main causes of global liquidity flooding.

For the subprime loan market, general lending institutions will adopt a "loan-grudging" principle out of prudent considerations.

Originally, its loan customers had poor credit ratings, but in the context of global oversupply of funds, lending institutions obtained sufficient sources of funds through subprime securitization, while the continued rise in housing prices made lending institutions ignore risks.

Loan review standards were arbitrarily lowered.

Loan standards were lowered and loan scales were excessively expanded, which were then transmitted through the securities market to investors around the world who invested in U.S. subprime loan securities, eventually turning into potential global financial risks.

Domino Effect in the Financial Market In order to stimulate the economy, the Federal Reserve has lowered interest rates multiple times while relaxing financial controls: On the one hand, it lowers credit standards and encourages commercial banks to lend to borrowers with low credit ratings; on the other hand, it allows financial institutions to provide loans at low costs.

Borrowing money to invest in high-risk assets allows investment banks to continuously design complex and highly leveraged derivatives to expand their sources of profits, and hedge funds have emerged in large numbers.

While providing liquidity and diversifying risks, the derivatives market also binds various financial institutions together with liquidity as a chain; once there is a problem in one link of the chain, it will cause a chain reaction.

The U.S. economy has entered a period of economic contraction. With the outbreak of the subprime mortgage crisis, more dominoes began to fall.

The market also began to move to the other extreme, and abundant funds seemed to disappear overnight.

The U.S. economy is facing a series of problems such as inflation, shrinking real estate market, and credit crunch.

This crisis does not stop at the financial market, but affects the real economy through multiple channels.