Municipalities then found it more difficult and costly to issue debt even though their activities were otherwise unrelated to subprime mortgages. 5 Next, the crisis spread to nonbank finance companies, which made a substantial fraction of consumer loans in the United States – for example, auto and credit card loans.
Governments, businesses and consumers have made financial choices and allocated resources with an understanding that a zero-interest-rate policy will remain in place indefinitely. The longer we leave interest rates at zero, the more asset values will be defined by these low rates and the greater the negative impact will be once the inevitable move up in rates begins.