...Root Causes of the 2008-2009 Economic Crisis Pol 201 For this paper I will look into the 2008- 2009 Economic Crisis. There were many factors that contributed to the crisis; I will focus on what may have led to the downturn of the economy and some of the policies implemented by key actors responsible for turning our economy around. I will also look at those who have changed monetary or fiscal policy, and laws governing business since the collapse. I will also give my thoughts on whether these changes will actually be successful on turning things around for the better of our economy. The economic collapse of 2008 has affected so many people across the nation. With the current unemployment rate at 8.2 percent, (less than .5 percent away from where it was the first year of the Great Depression) many people have lost their homes due to not being able to pay high mortgage costs. Everyone knows at least one family who has been affected by the collapse. Some may say it started because of bad mortgage lending, others say it is because people got in to mortgages that were beyond their means. I believe the crisis has to do with everyone involved in the picture; policymakers, lenders/banks, and consumers. I was born and raised in San Diego, California. My Mother and Father brought me up with the idea that owning real estate is always a good investment. At age 20, I had a great job making between 60,000- 80,000 dollars annually and the first thing I did when I was...
Words: 2390 - Pages: 10
...The WWII was like one of Houdini’s tricks that capitalism has come up with in its history to escape the economic crisis of depression that followed the WWI. Before the war, the policies implemented by Roosevelt were decedent and successful, but the economy was still suffering as the unemployment rate was very high. The war effort was a the main factor behind making a busy economy that lifted the US labor into full employment through the rising output growth resulted by investments and factories which means more income which then re-enters the system and gives an edge in productivity. The key behind this dynamic growth was initially driven by industrial production, then by expending this production for export and that what made the Golden Age of post WWII capitalism between the 1940’s to the 1970’s. To understand what happened during that period, it is important to know that the global economy has created the best conditions for high investment rates and high output rates, which means low unemployment rate and of course low inflation. This climate has helped the profit rate to continue to grow each year. But diving a little bit further, the real cause behind the growing rates was a pattern of technical change which is reflected in an important shift of the cyclical process driven by economic competition in which producers invest more and more in new machinery. That change has helped the labor-productivity to rise at increasing rates while keeping capital productivity at solid...
Words: 320 - Pages: 2
...The European Economic Crisis A Paper Submitted to Webber International University In partial fulfilment for the Bachelor of Science Degree in Finance By: James Holt Date: November 26, 2013 Course: ENG112-1 Semester: Fall 2013 Instructor: Professor Nancy Davis Word Count: 2663 The European economy is in turmoil. The credit crunch in 2008 caused chaos throughout the global and European economic systems and highlighted the negligence of not only governments but also the financial systems in place. In the highly praised publication the Economist the author G. Tett writes “The European economy is in the midst of the deepest recession since the 1930s, with real GDP projected to shrink by some 4% in 2009, the sharpest contraction in the history of the European Union. Although signs of improvement have appeared recently, recovery remains uncertain and fragile” (Tett, 2013). A publication of this magnitude publishing this shows the utter chaos in the European Economy. The economy of all countries within the Euro has been greatly affected; it has also affected the surrounding countries around the Eurozone. The stronger European economies have recovered a great deal these include...
Words: 2802 - Pages: 12
...BUSINESS CYCLE CASE STUDY Traditionally businesses have endured periods of not only high profits and huge sales volumes but also bombarded with those of low sales and low returns. Business managers have devised ways of going around these eventualities.Besides, economies in general have also been faced with periods of slow growth and high growth. These market changes and economic growth fluctuations usually move in a cyclical manner; expansion-peak-contraction-slump-expansion and so on. This cycle of fluctuations in economic activities in a given country or market is known as the business cycle (Harvey, 2015). According to Riley (2012), a business cycle refers to irregular, random changes in the economic activity of a nation or industry over a period of time usually several months or years. These changes leads to increase or decrease in a country’s gross domestic product (GDP). The GDP fluctuations imply an expansion or contraction of the economy. The period of economic growth is called boom while the period of economic decline is called recession. The highest possible growth just before the decline is called the peak while the lowest possible point during recession is known as the trough or the slump. According to Bowlin (2015), one of the main cycles business management will encounter in the life of a business is one that sees four, distinct trends: slowdown, bottom, growth and peak. All businesses, even the most aggressive sales organization in the world, will experience...
Words: 1002 - Pages: 5
...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 determinants...
Words: 1317 - Pages: 6
...FACING THE ECONOMIC CRISIS IN THE UNITED STATES: THE CAUSES AND SOLUTIONS Prepared for Kaplan University GB512 Business Communication Dr. Sue Pettine Prepared by Katherine M. Moore Student September 22, 2011 Contents Executive Summary……………………………………………………… 3 Introduction …………………………………………………………………. 3 Background……………………………………………………………………. 3 Potential Problems and Solutions ………………………………………………. 5 Conclusion and Recommendation ……………………………………………… 7 References ……………………………………………………………………. 7 EXECUTIVE SUMMARY The purpose of this research proposal is to take a look at the economic crisis in the United States. Our country is currently facing one of the worst crises since the Great Depression. Because of this financial crisis many people are facing many anxieties today. In order to work on a solution for this dilemma, we must first admit that we are in a dreadful predicament. This is not the time to disregard the economic setback. We must take a look at our financial situation not only in the United States but globally as well. When a nation is in a crisis there is a tendency to shift the responsibility on just one person. In this research proposal we will look at the economy as a whole. We will tackle the many hard questions that arise when a crisis hit. Some of the hard questions that we will...
Words: 2115 - Pages: 9
...Economic Crisis in America For the past several years, a declining economy has enslaved thousands of people in a life of hardship. The state of the economy has spurred mass furloughs, financial losses and homelessness. With no end in sight, people are becoming desperate in their attempts to support their families and maintain civility. While the government attempts to combat the depreciating economy, personal securities are increasingly declining. Society’s interconnection with the economy has led to massive personal losses. The economy has entangled governments and businesses all around the world, as if weaving its own web of destruction. The depreciation of the economy has forced business to invoke mass furloughs due to the inability to post profits. The loss of income has had a detrimental effect on society. Furloughs have caused people to sell personal items in order to support their families. People have been inhibited from obtaining savings accounts, loans, and housing. The effects of furloughs have included a rise in medical conditions. As a matter of fact, “The NIH has also documented that people under pressure to meet basic expenses are more likely to put off visits to primary care physicians for routine medical care, especially those who have lost their health insurance due to unemployment. As a result, minor health conditions can become exacerbated further increasing the overall stress level.” Businesses are forcing people to accept...
Words: 680 - Pages: 3
...The Asian Economic Crisis The Asian Economic Crisis of 1997 was a regional debacle that stirred and involved practically the rest of the world. It was a unique economical situation that no one expected or suggested. The southeastern Asian countries, such as Thailand, South Korea and Indonesia were financially sound and satisfied all the criteria that economists proclaimed necessary to maintain order and progress. However, economists and the rest of the world did not see the breaches in the economy and realize the affect those considerations would have in the exacerbation of an entire region. The purpose of this essay is to explain what the Asian Economic Crisis was, the causes, consequences, and how the world went about resolving the issue to bring this region to where it is today. The 1990s was a decade of enormous growth in Southeast Asia sustained by its exporting (Noble, 1). It was commonly known as the Asian economic miracle. Macroeconomic balances were relatively steady and inflation was under control in these Asian countries, like Thailand, Indonesia and Singapore. Because of the major progress and developments in these countries, it became an attractive location for foreign investment. Technology had reached a new brink, where people could invest internationally without having to leave the country and establish a huge investment abroad. Trading through the internet was easy, efficient and convenient. Capital Inflow into these countries was inundating the...
Words: 3821 - Pages: 16
...Tutorial 2: What do you understand by the term Global Economic Crisis of 2008? Identify and explain some of the causes. Global Economic Crisis of 2008 was known as the biggest financial crisis after the Great Depression of 1930s. In September 2008, one of the most venerable and biggest investment bank, Lehman Brothers was forced to declare itself bankrupt, and the world’s largest insurance company, AIG collapsed. The financial collapses of these companies triggered the global economic crisis, with Asian stocks slammed by; stocks fell off a cliff and became the largest single point drop in history. These tragedies crushed the world’s economy and result in global recession. It costs the world tens of trillions of dollars, rendered 30 million people unemployed and doubled the national debt of the United States (Inside Job 2010). The effect of the crisis is the bursting of United States housing bubble in 2004 and it caused the values of securities tied to U.S. real estate pricing to fall dramatically. The complex interplay of policies encourages home ownership, thus; people in the United States had easier access to mortgages loans. As the availability of credit is higher, more residents in the United States began to “own properties” by borrowing money from the banks. Due to the housing and credit booms, financial agreements- mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which gained their value from mortgage payments and housing prices, greatly...
Words: 1479 - Pages: 6
...Abstract In the later part of 2008 the world observed what is being labeled the world financial crisis since the Great Depression of 1920-30. The initial indication of a severe financial melt-down appeared in October 9, 2007 when the Dow Jones Industrial Average set a record by closing at 14,047. One year later, the Dow was just above 8,000, after dropping 21% in the first nine days of October 2008. Major stock markets in other countries had plunged alongside the Dow. Credit markets were nearing paralysis. Companies began to lay off workers in droves and were forced to put off capital investments. Individual consumers were being denied loans for mortgages and college tuition. After the nine-day U.S. stock market plunge, the head of the International Monetary Fund (IMF) had some sobering words: “Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.” It has been maintained that huge economy inequalities coupled with low rate of profit in the US economy contributed to an increased capital flow to the financial sector and the increasing provision of credit to US workers whose real incomes had declined. Under auspices of financial innovations, debt was sold in complex new financial products to investors. Cheap and apparently riskless lending drove the rising leverage of investments. ‘Securitization’ helped to spread the risks to global financial markets...
Words: 4003 - Pages: 17
...Case Study: Economic Crisis and Higher Education in the United States The 2008–2012 economic failure is considered by many economists and investors to be the worst financial crisis since the Great Depression of the 1930s. It results in the risk of total collapse from big financial firms, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis also plays a significant role in the crash of key businesses and collapse of housing market, results in the delayed unemployment. Higher education is a large and various venture in the United States, which has impacted by the economic recession in a number of ways, but these impacts have not been the same and vary depending on state and type of institution. Most higher education traditions started to be concerned about their financial problems due to economic recession. Their main source of revenue has been hurt by the downturn, and that those universities would need to make hard decisions about how to spend their money. In some states, a lot of institutions are in process of fund-raising programs to avoid delaying their supported campus building projects. Many of higher education university’s leaders have been considering and solving of two following questions: How is the economic downturn affecting institutions both public and private? What strategies are leaders implementing to guide their institutions? Unsuccessful budget strategies are the main reason that caused many...
Words: 1078 - Pages: 5
...However by Tuesday the 29th the stocks had crashed again as over 16million shares were sold. This was the start of what would be known as the great depression. From 1929 until 1939 America suffered the greatest economic crisis the country had ever seen and is perhaps the worst even to this day. During that 10 years unemployment reached nearly 24 percent. Amazing and horrifying considering the average rate is about 4 or 5 percent. In the beginning there was no minimum wage, no unemployment benefits and no welfare. It is estimated that the average wage was around .05 to .20 cents an hour for those lucky enough to have steady work. With gas around .15c per gallon, eggs .18c a dozen, and bread .08c a loaf feeding your family was possible but was definitely not extravagant. The economy slowly saw improvement until 1937 when another recession hit. It wasn’t until the outbreak of World War II in 1939 that the government in support of England and France started defense manufacturing, creating jobs. But it was the attack on Pearl Harbor that lead the government to declare war and our factories went into full production. This lead to some of the lowest unemployment rates in history and out of the Great depression. War, what is it good for? The Economy. The 1970’s oil crisis After American...
Words: 720 - Pages: 3
...Introduction The Hungarian economic crisis can be ascribed to changes in economic situation in particularly fiscal and monetary policies of the country, although the effect of the global financial crisis in 2008 cannot be taken too lightly. Hungary’s desire to become a member of the European Union required the country to embark upon “austerity measures” which further dampened its economic situation. Adoption of the shift to the right ideologies further deteriorate the Hungarian economic situation. Prior to the economic crisis of Hungary that appeared back in 1989, which saw a fall in standard of living and economic activity due to economic trade liberalization, the country had transformed from monarchy, communist and socialist economic systems consecutively. In the period 1867 to 1920 Hungary operated under a monarchy government and this ended in a planned and or command economic system. After the invasion and seizure by the Soviet Union, the country’s economic policies were transformed to communist economic system resulting in nationalization of the country’s industries and institution of collective agriculture. After the collapse of the USSR which it had ties with Hungry experienced a transition from a communist to a socialist economy through liberalization of economic policies which brought about foreign investment though contrary to expectations it had negative impact in the economy. The Hungarian State was forced into the economic crisis because of rapid transition from...
Words: 2106 - Pages: 9
...What Caused Economic Crisis? Readers Questions: What are the factors that makes today’s economic crisis? Which of them are the most important in today’s economic crisis? Some of the most significant factors in causing today's economic crisis: • A glut of saving from Asia. A glut of savings poured into US and similar countries like UK. This kept US interest rates low and encouraged high levels of consumer spending in US. It encouraged a large current account deficit in the US. It also encouraged an asset bubble, because it was cheap to borrow and this encouraged unsustainable lending. • US interest rates kept too low for too long around 2003-2005. This encouraged an asset bubble, especially in US. The problem was that inflation was low and people felt this was the most important target. In targetting inflation, people ignored the asset bubble. (see: Mistakes of Alan Greenspan) • Bad Loans. Probably the biggest cause of the current credit crisis. Banks and mortgage companies made a serious of bad loans especially for subprime mortgages. Basically, people were lent mortgages they had no realistic chance of repaying. Mortgage companies and banks were left with a series of bad debts they had to write off. (see: Subprime crisis) • Lack of Capital reserves. In the boom years, banks pursued a reckless dash for growth. This meant lending a high % of deposits. Therefore, when they suffered bad losses. They had no reserves to call upon. This led to a dramatic drop in bank loans...
Words: 456 - Pages: 2
...Venezuela is one of the countries with the largest oil reserves in the world. Three decades ago it was considered one of the countries with the highest living standards. Today, after seventeen years of revolution its economy is suffering a severe crisis. The question is, how this country that has larger oil reserves than Saudi Arabia, cannot fin basic good in shops? The crisis is a consequence of an economic mismanagement and the authoritarian Chavista Government. When Hugo Chavez came to power, his goal was to reduce inequality and provide a fair distribution of wealth among the population but, his failure was to diversify Venezuela’s economy. The financial health of the country was in excellent condition when the price of a barrel of crude oil was 100 dollars, between 2013 and 2014. The revenues of the oil industry were designated to fund social programs to reduce poverty, creating a socialist government. Instead of investing...
Words: 667 - Pages: 3
