Recent Debt Crisis: Uk, Us, Malaysia

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  • Topic: United States public debt, Government debt, Federal government of the United States
  • Pages : 10 (3355 words )
  • Download(s) : 29
  • Published : December 6, 2012
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Acknowledgement

First and foremost we would like to say, Assalamualaikum , peace be upon to you, the reader. We would like give many thanks to Allah the Almighty for permitting this work to be materialized into existence. An honorable mention goes to our family and friends for their understanding and support for us in completing this project. Without the help of the mentioned above, we would face many difficulties while doing this. Colleagues and classmates, thank you for the never ending help and assistance and cooperation throughout the entire project.

And lastly, to the most admirable and ever graceful Sir Shazali, our beloved teacher, lecturer, and source of wisdom, thank you for letting us see the financial market through your eyes. Thank you so much. He inspired us greatly to work in this project. Her willingness to motivate us contributed tremendously to our project. We also would like to thank him for showing us some example that related to the topic of our project. Besides, we would like to thank the authority of UiTM Melaka for providing us with a good environment and facilities to complete this project. Thank you all.

Introduction

Debt, what is it really? It can be defined as a relationship between a borrower and a lender. The borrower is called a debtor and the lender is called the creditor. This relationship can extend from a couple of individuals to mega corporations and as well as nations.

It all started in the United States. In the beginning, banks are and other lenders are doing well. Interest rates were low and cheap loans were available and they lent money and keep on debt with no problem. They had so much money that they invested their money into another market which at that time, called, the subprime market.

The banks and lenders lent money to unreliable borrowers to people with lower income, first time borrowers, and last but not least to those with poor credit history. Soon, many of these borrowers bought houses through the cheap loans. The banks and lenders bundled all of the debts and turned it into mortgage backed securities and traded it around the world. At the time, it was a pretty good idea since the houses were thought to always grow in its value but then the housing market called. Interest rates rise and cheap loans disappeared.

The subprime borrowers defaulted on their loan repayments. Having negative equity, the banks and lenders had to write off their balance sheets. The cost of borrowing increased and lending became scarce. This made it difficult for money to flow around the world. Thus, came into the existence the term “Credit Crunch”. Debt crisis will be elaborated and explained in detail regarding to the current issues occurring throughout the globe. But only a few countries would be picked out. Body/Content

United Kingdom
Europe is one of the seven continents on earth. It’s comprised of a number of countries. The ones that would be discussed are Britain and Greece. The British Government started borrowing since the 17th century by the newly formed Bank of England in 1694 to fund the wars and it became official by the 18th century through the issuance of bonds and other types of securities.

Today, Britain runs a large budget deficit because they spend more money than they could tax so they plugged the gap by selling more bonds to investors home and abroad which adds up to the UK’s National Debt. By 2016, the forecast shows that debt will be up to £1.5 trillion. This year alone Britain owes approximately £17,149 for every man, woman and child. That’s more than £37,684 for every person in employment. This means on average, every household in Britain will pay £1,925 this year, just to cover the interest. This year the burden sums up to approximately £138 billion.

The burden of national debt is real, and weighs on every family and one of the contributing factors to the incremental debt in Britain is before, during and after the election which...
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