By PAMELA GRUVER, KELLY MOYNIHAN, and KRISTI WARREN
Observer contributors
April 23, 2008

Macroeconomics: When the US Sneezes, the world turns to China

Terms: The 411 on credit terms, concepts and problems

Microeconomics: Debt vignettes from society

Living debt-free: Millionaire gives practical advice for a debt-free life

Post guru speaks: Post’s debt-free guru preaches a brown-bag lifestyle

Counseling: Non-Profit Credit Counseling Services; Friend or Foe?

A drastic solution: Cutting up cards may not be the best solution

Faith: Christian Debt Relief: Stewards of God?

When the United States sneezes, the world catches a cold – or so the saying goes. In the last few years, the U.S. housing bubble has collapses, unemployment has skyrocketed, financial institutions have stumbled, inflation increases by the day, and the country is pouring money into funding two foreign wars.

The U.S. has been called the epicenter of this global financial crisis because many economies, domestic and foreign, bet on the American consumer. It started when the housing markets in California, Florida and other boom states crashed and the securities tied to mortgages created heavy losses for the U.S. financial institutions, leading to a weakened economy and the drying up of credit in the U.S. and parts of Europe.

In an attempt to preempt a recession, the Fed slashed interest rates, some say too much, which now leaves us with a weakened dollar. All this - combined with high gas prices and credit card debt - has left Americans less willing to open their wallets and support many countries exports, sending a ripple effect throughout the world.

Federal Reserve Chairman Ben Bernanke confirmed the economy’s growth has slowed and recession is a real possibility.

Not all foreign economies, however, are feeling the domino effect from the U.S. financial crisis. Countries with economies based on their natural resources, such as oil, iron-ore, aluminum and copper, are weathering the current financial situation because of their high-price commodities. And now that China and India have emerged as big consumers, these countries have become alternatives to the once-dominant U.S. market.

Source: Peterson Institute for International Economics.

Source: Peterson Institute for International Economics.

The United States is not the only country feeling pressure from the mortgage crisis. The United Kingdom, Germany and Japan are also feeling the pressure.

The United States must look at its own debt and spending before all of this can be blamed on the mortgage crisis. Right now, the debt is almost 70 percent of the GDP. If the federal government debt was divided among everyone, we would all be paying approximately $30,000, up from $20,000 in just 2002.

Asset Bubbles
The recent credit crisis is so complex that no one really knows how it happened. Common sense says that it is a compilation of small-but-serious crises that culminated into the current global financial slowdown.

Oil, commodity, and inflation bubbles that peaked in 1980 have helped create this current situation: the highest rates of inflation in centuries.

Housing prices soared beginning in the late 1990s. Adding to the asset bubble were historically low interest rates, declining building costs and moderate inflation, which assisted the over inflated housing boom.

The system is stacked against the regulators because they are shackled by politics, are paid less than those on Wall Street, know less than the financial gurus, and they think like everyone else, following the financial herd.

Source: Federal Reserve.