Effectively, the United Stated paid for its deficits – or shortage of savings – by supplying dollars to the rest of the world, contributing to the creation of excess global liquidity and asset-price bubbles. Feedback loops All of this came to a head in August 2007 with the outbreak of the U.S. subprime crisis.
Although that crisis produced a substantial slowdown in U.S. economic growth, initially much of the remainder of the global economy, including the euro area, was largely unaffected. The global economy bent, but it did not break. Financial wounds continued to ferment, however, despite the efforts by policy-makers to sustain market liquidity and capitalization.