Causes Of The Great Recession
The Crisis of 2008 was the worst financial crisis since the Great Depression, and because of that it has earned the name the Great Recession. It is important to know that the factors leading up to this recession started years in advance and it wasn’t until 2007 that the crisis officially started. Though there are many factors that led to the Great Recession, the factors lead to one major cause, which was the bursting of the housing bubble. The crisis not only impacted the United States, but also other countries. Overall, the crisis was an event that still impacts the economy today, but we are slowly recovering. To fully understand the Crisis of 2008, it is first important to understand what a housing bubble is. The term comes from a period
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Investment banks and mortgage lenders went bankrupt. In some cases, investment banks or mortgage lenders were acquired by other firms. As mentioned before, people could not afford to pay their mortgages. As a result, there were many foreclosures. The overall impact of the Housing Bubble bursting was an economic downturn. SInce fewer people were investing, there was a decrease in investment spending. What made things worse was that many people lost their jobs. This worsened the economic situation. The government was no longer being stimulated and people were not buying many products. Also, loan lenders decided it was time to tighten the standards back, so that people who would most likely not be able to payback their loans could not get loans anymore. The high unemployment rate was a startling result of the crisis, and it was almost at 10 percent in 2008 (Samuelson,2015). That is almost double of the unemployment rate today. The economy really suffered during this time, even the GDP was impacted. The GDP has a pretty constant increasing rate every year, but in 2009 the GDP dipped to almost $14,000 billion. The potential GDP for the same time was over $15,000 billion. The economy could have been producing more, but it wasn’t due to the Crisis of …show more content…
When people went to buy houses sometime mortgage-back securities were used, and these were sometimes held by banks overseas. When there was a great mass of people who could not pay back the debt, the banks holding these securities lost the money too. The banks depended on the debt to be paid back, but when it wasn’t banks failed. This occurred both in the United States and around the World. When the United State is in a recession, it is quite possible that other countries are in one too. This is because a lot of countries depend on each other to support one another's economy in someway. Saying that, some countries depend on the United State’s exports to sell in their country, but when the economy was failing, these products were not being produced at the same rate, and therefore could not be exported to other countries. Along with that, the United States is a major consumer and that means we import a lot of products. When people are not spending as much money, they are not buying as many products as they would during an expansionary time. That means the foreign countries that export goods to the United State lose a lot of buyers. As a result, this translates to the decline of the other countries’
Investment banks and mortgage lenders went bankrupt. In some cases, investment banks or mortgage lenders were acquired by other firms. As mentioned before, people could not afford to pay their mortgages. As a result, there were many foreclosures. The overall impact of the Housing Bubble bursting was an economic downturn. SInce fewer people were investing, there was a decrease in investment spending. What made things worse was that many people lost their jobs. This worsened the economic situation. The government was no longer being stimulated and people were not buying many products. Also, loan lenders decided it was time to tighten the standards back, so that people who would most likely not be able to payback their loans could not get loans anymore. The high unemployment rate was a startling result of the crisis, and it was almost at 10 percent in 2008 (Samuelson,2015). That is almost double of the unemployment rate today. The economy really suffered during this time, even the GDP was impacted. The GDP has a pretty constant increasing rate every year, but in 2009 the GDP dipped to almost $14,000 billion. The potential GDP for the same time was over $15,000 billion. The economy could have been producing more, but it wasn’t due to the Crisis of …show more content…
When people went to buy houses sometime mortgage-back securities were used, and these were sometimes held by banks overseas. When there was a great mass of people who could not pay back the debt, the banks holding these securities lost the money too. The banks depended on the debt to be paid back, but when it wasn’t banks failed. This occurred both in the United States and around the World. When the United State is in a recession, it is quite possible that other countries are in one too. This is because a lot of countries depend on each other to support one another's economy in someway. Saying that, some countries depend on the United State’s exports to sell in their country, but when the economy was failing, these products were not being produced at the same rate, and therefore could not be exported to other countries. Along with that, the United States is a major consumer and that means we import a lot of products. When people are not spending as much money, they are not buying as many products as they would during an expansionary time. That means the foreign countries that export goods to the United State lose a lot of buyers. As a result, this translates to the decline of the other countries’