The economic concepts involved in this song are basically the credit carts and the loans. Interest rates are also involved as well. Interest is charged by lenders as costs for the loss of the asset’s use. In the process of lending money, the lender could have invested the funds instead of lending them out. With lending a large asset, the lender may have been able to generate income from the asset should they have decided to use it themselves.
People started to take loans for housing purposes in America at that time. They wanted to buy houses or to invest these loans or to buy bonds so that they could get more money on returns. Investments are negatively related to interest rates. So when interest rates increases, investment will be high. They could also buy bonds with these loans. If interest rates are high, value of money decreases and the bonds purchased by the people for future prospects will be of lesser value in present but when interest rates declines, bonds will be more profitable.
THE FINANACIAL CRISIS IN AMERICA
The financial system in USA was hit by many factors among which the main was the change in ability to create new lines of credit. This made to dry up the reserve cash of the financial institutions and hinged their credit and ability to make new loans. Also, it must be noted that cheap credit made people to buy more houses or investments.
The Term Paper on Interest Rate Bonds Bond Rating
... determiners of bond prices are interest rates and credit risk.With respect to the risk of the credit quality of the bond issuer, imagine ... interest rates fluctuate. When the interest rates fall, many people turn to bonds as there isa greater rate of return. The more people who buy bonds, ... the Canadian treasury is unlikely to default on a loan. For corporations, however, the possibility of 'going broke' ...
This created more money in the market causing inflation. The increased loan packaging, market and incentives had prompted borrowers to presume difficult mortgages in the belief they would be able to quickly refinance at more favorable terms. But due to a drop in housing prices and rise in interest rate, difficulty in refinancing started. The consequences of this trend led to a huge loss of banks. The credit dried up, the housing market declined; etc. The whole financial system was crushed.
This song does not demonstrates the actual scenario of the USA crisis but it simply presents an outlook of a working man who is paying hard due to government’s system.
References:-
Cowboybleau, Single Review: “Shutting Detroit Down” by John Rich. February 11, 2009.Available at http://countrycentral.wordpress.com/2009/02/11/single-review-shuttin-detroit-down-by-john-rich/
Shakil-ur-Rahman,Mir. “Overview of Economic Survey 2008-09”.The News[Karachi]. June 12, 2009.Available at http://www.thenews.com.pk/daily_detail.asp?id=182548
Interest Rate at Investopedia. Available at http://www.investopedia.com/terms/i/interestrate.asp
