The Impact of the Global Financial Crisis on Housing Finance
An oversupply of US dollars
In the early 21 century, the United States’s domestic and foreign policies had substantially increased government spending and deficits. The budget shortfall was financed through additional issuance of Treasury securities which, together with a huge trade deficit, contributed to a widening gap in the balance of payments. This did not prevent the United States from maintaining expansionary fiscal and monetary policies, with more and more low-interest credit supplied to the financial markets, causing an “overflow”. The oversupply of low-yielding dollars triggered commodity st
speculation with attendant high prices and inflation, and reduced the purchasing power parity of the US currency. The magnitude of US dollar depreciation can be reflected in the rocketing rise in gold prices, soaring from US $288 per ounce in 1999 to more than US $905 in 2008 (Figure 1). The oversupply of US dollars has global impacts on other countries’ wealth. Many countries are paid in US dollars for exports, only to see the value and purchasing power of these hard-earned receipts eroded by inflation and oversupply. Countries and individuals holding US dollars lose wealth.
Figure 1: The rise of gold prices against an oversupply of US dollars Depreciation of Dollar against Gold US$ per ounce
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Source: Finfacts Ireland 2008 check out www.research.gold.org > Prices
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