As interest rates started falling due to excess liquidity, house prices started rising rapidly, creating a pool of wealth in the hands of Americans, which they unlocked by contracting mortgage loans. It benefited them in two ways — they got huge liquidity at inflated housing prices and at interest rates that were practically lowest in the last twenty years. This became a virtuous cycle, which resulted in very high consumer spending, obviously fuelling global growth.
As interest rates started rising in the U.S due to inflation concerns, this virtuous cycle came to a standstill and the demand for houses started tapering. This resulted in lower prices for houses and many were unable to cover the mortgage loans. It has now hit the entire banking industry in the U.S and the virtuous cycle is becoming a vicious cycle.
This subprime crisis has inevitably become an election issue, and the Democratic presidential candidates have outlined plans to address it.…

Capital Account Convertibility (CAC) is the freedom to convert local financial assets into foreign financial assets at market determined exchange rates. Referred to as ‘Capital Asset Liberation’ in foreign countries, it implies free exchangeability of currency at lower rates and unrestricted mobility of capital. India presently has current account convertibility, which means that foreign exchange is easily available for import and export of goods and services….