Premium Essay

2008 Us Economic Recession

In: People

Submitted By chiragpatel50
Words 1696
Pages 7

The Global Financial Crisis of 2008 is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. It resulted in the threat of total collapse of large financial institutions, the bailout of small and big banks by national governments, and downturns in stock markets around the world. In United States, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer confidence, declines in consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis.

The bursting of the U.S. housing bubble, which peaked in 2006, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally. Economies worldwide slowed during this period, as credit tightened and international trade declined. Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts. In the U.S., Congress passed the American Recovery and Reinvestment Act of 2009. In the EU, the UK responded with austerity measures of spending cuts and tax increases.

Causes of Financial Crises

Subprime lending

During a period of intense competition between mortgage lenders for revenue and market share, and when the supply of creditworthy borrowers was limited, mortgage lenders relaxed underwriting standards and originated riskier mortgages to less creditworthy borrowers.

As well as easy credit conditions, there is evidence that competitive pressures contributed to an increase in the amount of subprime lending during the years preceding the crisis.

Growth of the housing…...

Similar Documents

Premium Essay

Us Recession in Macroeconomics Perspective

...Question 3 Oil prices and U.S. GDP both fell in 2009. Use a graph to explain this observation of falling oil price and falling GDP. In 2009, world economy encountered one of the most severe downturns due to financial crisis incurred in 2008. The crisis resulted in a period of deflation (refer to Exhibit 1) and failing consuming confidence, which cause a fall in aggregate demand. Decreasing demand shifted the AD curve to left, from AD0 to AD1 (refer to Exhibit 2) so that GDP decreased to Y1. Exhibit 1 We assume all other products price does not change in short run, except oil price. As in equilibrium point B, potential oil supply was greater than current demand, there is pressure to lower oil price to the long-term equilibrium point C and increase GDP to original level, so in result oil price started to decrease after financial crisis (refer to Exhibit 3). US Congress approved the $787 billion economic stimulus package in February 2009. It allocated funds in tax cuts, in extended unemployment benefits, education and health care and in job creation. The package was designed to be spent over ten years. By the end of FY 2009, $241.9 billion had been spent: $92.8 billion in tax relief, $86.5 billion in unemployment and other benefits and $62.6 billion in job creation grants. This stimulus package shifted AD1 to AD2. Meanwhile, under pressure of decreasing oil price and demand, OPEC deducted oil supply in 2009 in order to maintain oil price. SRAS0 should have been......

Words: 515 - Pages: 3

Free Essay

Pakistan-Us Economic Relations

...1. ------------------------------------------------- Background US -Pak relations in the last six decades have been unstable and moved in a cyclic pattern with ups and downs, sometimes having close partnership and sometimes having sharp friction between the relations, which are set according to the global and regional geopolitics.US PAK relations have different aspects during different presidencies,e.g:-during the Eisenhower, Nixon and Regan they were not smooth but during the Kennedy,Johnson,Carter,Bush and Clinton administrations however, policies were significant. Pakistan came into existence just as the cold war was started between AMERICA and SOVIET UNION. There were two camps, Soviet and US camp. Infant Pakistan and India had to pick their camps. 2.1 ------------------------------------------------- Relations during Liquat Ali khan: In 1947 liquat Ali khan became the first prime minister of Pakistan; in 1949 two invitations were received to liquat Ali khan. In 1950, Liquat Ali khan (1st pm) of Pakistan was invited by soviets and Americans, and then he chose to visit United States that was the start of Pak-Us relations, and India joined the soviet camp. When liquat ali khan visited USA he was warmly welcomed by the US president TRUMAN, here Liquat ali khan delivered a speech and said that both USA and PAKISTABN have same past both were under the colonialism and liquat ali khan was pro west so liquat Ali khan joined American block. Liquat Ali khan supported......

Words: 7540 - Pages: 31

Premium Essay

Fiscal Policy for Us Recession.

...Explain how fiscal policy can be used to address a recessionary gap and discuss the merits and the consequences of the actual fiscal policy of the current administration. Why republicans are criticizing the current approach? What kind of fiscal policy are they proposing and will it work in light of the US experience? NO it will not. Democrat:”we can’t cut hour way to prosperity.Republican:”we should not increase taxes on anyone in the middle of a recession”. Fiscal Policy is described as changing the taxing and spending of the federal government for purposes of expanding or contracting the level of aggregate demand output and employment; these are designed to increase short-run economic growth. Fiscal policy is used to achieve macroeconomic objectives such as full employment, price level stability and sustained economic growth. In a recession, an expansionary fiscal policy involves lowering taxes and increasing government spending. By cutting taxes, increasing government spending programs, and increasing transfer payments, more money is in the economy, more income, and more spending. This can be done through the federal budget process; however, the problem with fiscal policy is lag time. This process can take so long (as long as a year or more) that Discretionary Fiscal Policy is very rarely used in the federal government; still, the lag between a change in fiscal policy and its effect on output tends to be shorter than the lag for monetary policy. Instead, the......

Words: 828 - Pages: 4

Premium Essay

China Economic in 2008

...College Assignment Chinese Economics in Global Financial Crisis of 2008 Prepared for F.S. Helmut Submitted January 10th, 2014 Ludacris Yu As for the financial crisis of 2008 in the world, which is the most serious economics crisis since the Great depression in 1930s, and caused globalized influenced. Many major economics have had flat and passive development over the last two years. Whereas in China, the economics still have been growing stabilized. According to the Wikipedia “China is the world’s second largest economy by nominal GDP and by purchasing power charity after the United States of America. And it is the world’s fastest-growing major economy with growth rates averaging 10% over the past several years.[1]” The financial crisis also mean a financial storm. The meaning of storm that are the financial indexes such as short-term interest rates, monetary assets, securities, real estate, land prices, the number of business bankruptcy and the collapse of several financial institutions suddenly or short-period deteriorated in the largest number of countries and regions. The financial crisis can be divided into a currency crisis, debt crisis, banking crisis or others. The economic crisis in the year of 2008 was originated in the U.S. Sub-prime mortgage crisis, the development of the U.S. Sub-prime mortgage crisis, which evolved into a global financial crisis. In my opinion, the crisis in 2008 which began to emerge in the second......

Words: 1149 - Pages: 5

Premium Essay

Economic Crisis of 2008

...Causes of Economic Crisis of 2008 and its resulting Recession Student’s Name Institution Introduction The economic crisis of 2008 which began in the United States had great impact in the global economy. The economic crisis began slowly and grew into global economic crisis. It has affected the stock markets to the extent of stopping operations. In the US it is an issue which has been used as a campaign tool for presidential candidates to request for votes during their campaigns. Due to the crisis many US citizens have felt its impact and even lost their jobs. The crisis began with the United States housing market and gradually resulted into liquidity crisis (Steil, 2009). It is in this regard that this paper looks into the causes of the economic crisis of 2008 and its resulting recession. Causes of the 2008 crisis and its resulting recession Actually, the United States experienced many serious problems that included frozen money markets, plummeting dollar, banks on the threshold of bankruptcy, declining stock market, high levels of public debt and the impending threat of recession. According to some economists, the economic crisis was mainly affected by the world imbalances, perceptions of interest rates, risks and the regulations of the financial system. The following are the main causes of the economic crisis of 2008: Housing Crash The United States housing market is one of the main......

Words: 1317 - Pages: 6

Premium Essay

Global Recession, Oil Sector and Economic Growth in Nigeria

...Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06 GLOBAL RECESSION, OIL SECTOR AND ECONOMIC GROWTH IN NIGERIA. BY S. O. OLADIPO ( Department of Economics and Accounting Bells University of Technology, Ota. E-mail address: AND PROF. J. O. FABAYO Department of Economics, Obafemi Awolowo University, Ile-Ife ABSTRACT This study investigates global recession and the oil sector, based on its effects on economic growth in Nigeria. No doubt the global economy has been experiencing some disturbances. Major economies of the world have been affected and so has the major sectors of these economies especially the ones that has a direct bearing with international trade been affected. The oil sector particularly has been one of the hit. For a country like Nigeria whose international trade is majorly in oil, the effect has become an issue. Empirical analysis using the Ordinary Least Square (OLS) reveals that there was a negative relationship between GDP and oil produced (domestic consumption and export) which is significant at 5% lever of significance i.e. (P < 0.05). The result also showed that there exists decline in the oil sector due to the global recession despite all measures given by government to curb it effects. It was Jan 2012 recommended that the federal government needs to deregulate the sector for efficient performance, and also come up with more rigorous policies that will reduce this effects on the real......

Words: 5684 - Pages: 23

Premium Essay

Us Automotive Bailout of 2008

...2008 Auto Bailout Cause and Effect Essay It is argued that America invented the automotive industry when Henry Ford introduced the Model T to work lines in 1908. Since then the American auto industry has been known as the most successful in the world, with Ford, Chrysler, and General Motors leading the way in innovative technology and design. These “Big Three”, as they are called, hold ties in every civilized continent, and sell millions of cars every year. Yet at the turn of the 21st century, the fortune of these companies began to wane. Oil prices skyrocketed, and the model lineups for American cars were unable to keep up with the demand for fuel efficient vehicles. Eventually in 2008, Chrysler and GM were bailed out by the government with a 80 billion dollar loan. America was largely divided on this issue, with valid arguments on both sides. Overall conservative parties were against the bailout and liberal parties for it. Political motivations aside, the 2008 automotive bailout was necessary for hundreds of thousands of Americans to keep their jobs, and to sustain one of the U.S.'s largest industries. Before the oil crisis began, American auto makers' primary concern were foreign imports. The Japanese had found a way to produce an affordable and reliable car while still turning a profit. On top of that, they had perfected the industrial technique of vehicle production, churning out more vehicles per day than any other country. As a result, U.S. Car makers were forced to......

Words: 1004 - Pages: 5

Free Essay

Economic Recession: Causes and Effects

... Economic Recession: Causes and Effects Student’s Name University Affiliation Economic Recession: Causes and Effects An economic recession is a slowdown in economic activities such as employment, distribution, production, real income and real GDP. The 2008-2009 economic recession was the longest in duration and deepest in contraction since the great depression of 1929-1932, (Roberts, 2009). Its causes were mainly preventable through a series of legislations and so it can be avoided in the future. This paper champions the thesis that the recent economic recession was largely avoidable, but the application of inappropriate economic strategies as presented below caused its occurrence, and has so far had overarching effects on the world. According to (Simpson, 2009), the recession was the direct and unavoidable result of the credit boom that preceded it. First, the credit boom was partly a result of low interest rates that lasted too long, facilitated by governments and their central banks. This resulted in the build-up of a credit bubble. Secondly, governments failed in the role of regulating the credit market. This encouraged borrowing of those who were least able to repay, resulting in an increase in demand of properties, (Bessler, Leatham and Zhang, 2006). Once demand had risen, property prices went up, attracting more investors into the market. Then the desire for profit was overtaken by the fear of loss as the market was......

Words: 769 - Pages: 4

Premium Essay

Recommendation for the Current Economic Recession

...1st off, tell your teacher the President has nothing to do with interest rates. The Fed (Federal Reserve or Central Bank) controls that. The Fed would LOWER interest. If that fails, they would increase the money supply The President MAY, on advice, ask Congress to INCREASE spending, using the money the Fed has bought Treasury securities with, to stimulate the economy. You NEVER ever raise taxes during a recession. ------------- If he wants not to lose his job by turning USA into a non-market, Government controlled economy, he should allow the Federal Reserve Board to deal with interest rates: whether or not the Fed succeeds in increasing employment by reducing interest rates is not the President's concern. 2. President's focus should be on how by the Government's legitimate actions, the spending power of the households and businesses can be increased. It seems that he has no choice but to continue the stimulus spending for another year. But that alone may not help sustain fall in unemployment rate. He must reduce taxes at the lower levels of income drastically and reduce the corporate tax rates for the next two years so that their effective disposal income increases and they buy more locally produced goods and invest in capacity to produce more. Of course, reducing taxes would mean, the Government will have a larger deficit and high deficit can cause problem of inflation later besides making it costlier for private......

Words: 1119 - Pages: 5

Free Essay

Analysis of the Trade Impacts of the Global Recession of 2008

...Analysis of the Trade Impacts of the Global Recession of 2008 International Economics Oliul Islam (352949) Table of content 1. Introduction 2. The Recession 3. The Recession * Poor risk management * Over reliance on the Bull market * Trade Imbalance and debt bubbles * Lack of Transparency * Misguided information from the rating agencies 4. Effects on global trade * Trade and Industrial production * Unemployment * Financial market * Travel * Insurance * Small business lending * Pollution 5. Global responses 6. Policy recommendations 7. Risks 8. References Introduction In 2008, the world experienced a major financial crisis which was rooted from the US housing market; moreover, many economists considered it as one of the great recession since the Great Depression in 1930s. After posing a huge affect on the U.S economy, the financial crisis expanded to Europe and the rest of the......

Words: 1982 - Pages: 8

Premium Essay

Economic Integration: Globally and in the Us

...effects on national economics, the relationship between economic, political and social outcomes along with the interaction of nations through multilateral agreements. This paper explores the types and levels of economic integration and in particular the integration of the US with other markets. Focusing on trade through the NAFTA, the advantages that TPP and T-TIP could offer and the beginning of a fruitful partnership with Africa through the AGOA. Economic integration is an arrangement between different regions marked by a reduction or elimination of trade barriers and coordination of monetary and fiscal policies. There are various economic and political reasons as to why nations would want to pursue economic integration. Removing trade barriers comes with costs and benefits, depending on the degree of integration and the level of cooperation between member regions. Integration is believed to lead to lower prices for consumers and producers, thus causing the volume of trade to increase. However for nations outside integration agreements, barriers to trade can be created, as they may not be able to compete with preferred trading partners. When economies are strong, integration has benefits for all the members and each union can experience certain economic growth. The same holds true of economic downturns, if one member of a trade agreement begins to fall, their economic problems may spread. Growing nations are usually particularly eager to engage in economic......

Words: 2490 - Pages: 10

Free Essay

2008 Great Recession - Companies Who Survived and Alternate Methods to Employee Layoffs

...2008 GREAT RECESSION COMPANIES WHO SURVIVED AND ALTERNATE METHODS TO EMPLOYEE LAYOFFS MGT 310-06 PROFESSOR CAS CASWELL BY DE’-LISA BARNES INTRODUCTION In 2008, the end of the first decade of the 21st century, the world market experienced the worst economic decline, known as the Great Recession. The overall impact was described as being the worst global recession since World War II. The precise magnitude and timing of the recession is widely debated and varied from country to country. The years leading up to the crisis were characterized by a highly excessive rise in asset prices, combined with a boom in economic demand, which inflicted a clear hardship for businesses and families. To further explain my research, this paper will focus on the following: What caused the great recession, Effects of the recent recession, Types of Businesses that survived the recession, Companies that hired during the recession, Companies that choose shared-worked programs over layoffs, Various states that participates in the work shared programs, and the Advantages of the work share program. WHAT CAUSED THE GREAT RECESSION The Great Recession actually began in December 2007, which is long before most people ever realized what was to soon transpire. Although there are many speculated factors or causes that led to the recession, the American people strongly believe that the following groups are responsible for the Great Recession of 2008: Government, Mortgage Companies,......

Words: 4269 - Pages: 18

Free Essay

The Cause of the Economic Crisis of 2008

...Yang Vang ECO 204 The Cause of the Economic Crisis of 2008 Two thousand eight found the American economy in turmoil. The housing market made a dramatic incline which caused an increase in foreclosures. The major investment banks took a huge fall and the stock markets fare no better either. These were events that leaded up to the economic crisis of 2008. There were three major government incentives that were implemented; the Housing and Urban Development policy, Reinvestment Act, and the Federal’s low interest rate policy. These were the incentives that the government provided that ultimately caused the economic crisis of 2008. During the mid-1900s the government set up regulations to help Americans own homes and this made it possible for lenders to lend money to everyone, regardless of income. This was the American dream that people work so hard for. So when it was made possible by the government regulations, there was no stopping Americans from jumping on that wagon. The home owing process was made possible by HUD (Department of Housing and Urban Development) regulations that required lenders like Fannie Mae and Freddie Mac to accept loans with little or no interest down (Pozen, 2010, p. 28). The loans held by Freddie Mac and Fannie Mae went from 25% in 1990 to 45% in 2001 (Gwartney et al., 2008, pg. 481). They owe about half of the United States’ mortgage markets. Then there was the Reinvestment Act that reduced the conventional lending standards to meet the......

Words: 596 - Pages: 3

Premium Essay

Economic Recession

...Economic Recession Ministry spokesman Shen Danyang said China's inbound foreign investment had been relatively stable against the backdrop of shrinking global investment amid economic recession. "The inbound foreign investment growth has been positive for three months in a row, indicating China's economic competitiveness and foreign investors' confidence in the country," Shen said. According to a latest report by consulting firm KPMG, China has become the top destination for sourcing among multinational companies outside their home country with these companies moving more of their research units close to production bases. However, the investment outlook remained murky as China's overall economic performance in recent months fell short of expectation and pointed to a fragile recovery, analysts said. "China's economic recovery has been softer than expected since March, which may discourage foreign investment in the short term," said Li Maoyu, an economist at Changjiang Securities Co. China's gross domestic product expanded 7.7 percent from a year earlier between January and March, weakening from the pace of 7.9 percent in the final quarter of last year. The World Bank recently lowered its projection of China's growth this year to 8.3 percent from the previous 8.4 percent, citing risks in the property sector, financial system and local government liabilities. During the January-April period, investment from the 27-member EU rose 29.7 percent to US$2.5 billion, while......

Words: 316 - Pages: 2

Premium Essay

The Economic Crisis of U.S in 2008

...vanished, with retirement accounts and life savings swept away. Businesses, large and small, have felt the sting of a deep recession. There is much anger about what has transpired, and justifiably so. Many people who abided by all the rules now find themselves out of work and uncertain about their future prospects.” When reading this information, you may think it may be the status of a certain poor country. The particularly serious numbers show that country is experiencing many problems. I will tell you a secret that you can not have more surprise. The above information is situation of the country that has a most powerful economy all over the world. That is United State of America. The year 2008 marked the economic crisis which caused the USA severe damages. Many of the US financial institutions have suffered heavy losses due to the effect of this crisis. In addition, the crisis is increasingly spreading to the economies of some countries in Europe and in Japan... As a result, some powerful banks in these countries are also suffering from the impact of the crisis. The consequences of the crisis are not only observed in the dimensions of business operation and the economic growth rate and employment rate in the US, but also taken into consideration on the global impact on the shift of international investment capital flow in particular and the world’s economic growth in general. Therefore, it is really necessary to find out what creates this crisis in order to help other......

Words: 2799 - Pages: 12