Preview

Causes Of The Great Recession

Better Essays
Open Document
Open Document
1799 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
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 …show more content…
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’

You May Also Find These Documents Helpful

  • Good Essays

    The United States of America has gone through many different economic ups and downs, 2 of the most horrific downturns being the current recession and The Great Depression last from about 1929 to 1939. While these two deflationary periods in our economy have several differences, they posses many more similarities in the events that lead up to them along with a high unemployment rate and the difficulty in receiving a mortgage or loan from a bank. The origin of these two economic events cannot be blamed on one single person or a group, but on the United States as a whole who neglected to fulfill their economic duties. This comparative essay will show the similarities and differences between The Great Depression and the Recession of the 2000’s.…

    • 753 Words
    • 3 Pages
    Good Essays
  • Best Essays

    The housing market crash between 2006 and 2007 is considered the worst one in this country 's history. Home ownership rates in the U.S. had risen from 64% to an all time high of 69.2% between 1994 and 2004 (Watkins, 2015). By the beginning of 2006, house prices had reached unsustainable levels. As a result, demand waned and prices fell dramatically by the end of 2006 and through 2007. Prior to the subprime mortgage crisis, the housing market was booming due in large part to new loan instruments advertised by mortgage brokers to make homeownership more affordable. Once prices on homes reached a peak and demand dropped, the housing bubble…

    • 2391 Words
    • 7 Pages
    Best Essays
  • Powerful Essays

    ECON 410 Final Paper

    • 2384 Words
    • 8 Pages

    So you might ask yourself, what exactly is a recession? According to the Bureau of Labor Statistics, characteristics of a recession include: a general slowdown in economic activity, a downturn in the business cycle, as well as a reduction in the amount of goods and services produced and sold. The official arbiter of U.S. recessions, the National Bureau of Economic Research, states that there has been a total of ten recessions between 1948 and 2011. The most recent financial crisis began in December of 2007, this is considered to be the worst financial disruption since the Great Depression of 1929 – 1933. Although these recessions were different in character, both crises were affected by bank failures that led to large declines in the economy. This last recession known as the Great Recession lasted from December of 2007 to June of 2009, the U.S. economy has yet to return to pre-recession economic times but it has seen an increase in economic growth.…

    • 2384 Words
    • 8 Pages
    Powerful Essays
  • Powerful Essays

    The Dodd-Frank Reform The financial crisis of 2008 created one of the most uncertain times in the United States’ economy history. Not only did it affect thousands of businesses, but also consumer’s confidence dropped to levels not seen since the great depression. After the failure to address the issues created by the banks, the economy took a turn for the worse. The only way to move the economy forward was to bailout those banks and businesses that were essential to the US economy.…

    • 1644 Words
    • 7 Pages
    Powerful Essays
  • Satisfactory Essays

    Giant Pool of Money

    • 299 Words
    • 2 Pages

    The mortgage crisis was a result of too much borrowing and flawed financial modeling, largely based on the assumption that home prices only go up. Greed and fraud and easy money also played important parts before the mortgage crisis.…

    • 299 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    In 2008, the economy took an unexpected turn that experts themselves was in disbelief when it happened. The U.S economy was headed in a recession. The first sign was when Bear Stearns put itself up for sale, one of the largest as well as the oldest investment company that survived the Great Depression, but when the mortgage crises started, Bear Stearns was having a hard time (Solomon, 2011). When this happened, experts knew this was a sign of trouble. A few months later, Lehman Brother that was established before the Civil War was leaving the market as well. With these types of companies leaving the market, this caused the government to bail out banks as well as big automakers. This also caused the Dow Jones Industrial average to drop below 10,000 for the first time in years and the Dow continued to drop in the year 2009 to 7,000. Due to all the changes, this also caused unemployment to reach an all record high of 8.5 percent.…

    • 270 Words
    • 2 Pages
    Good Essays
  • Good Essays

    In 2008 there was a significant banking crisis that led to "the great recession," during which millions of people lost their homes, their jobs, and their standard of living. This disaster was caused by reckless behavior on Wall Street.…

    • 222 Words
    • 1 Page
    Good Essays
  • Good Essays

    This looming global recession is being fed by the collapse of housing bubbles in the United States.…

    • 448 Words
    • 2 Pages
    Good Essays
  • Better Essays

    Albert Brooks 2030 Essay

    • 1103 Words
    • 5 Pages

    Economic issues for years, have negatively impacted several aspects of American life. The Great Depression and the Recession are just two of many financial crisis that were detrimental to the overall health of the country. The Depression resulted in people losing their trust in banks which ultimately led to the decline of banks. Employees lost their jobs and families were displaced from their homes. Many citizens went hungry and even suffered from depression due to the condition America was in. The recession was caused by leaders of major corporations (Wall Street). Too much power had been placed in the hands of individuals who were incapable of making smart decisions that promote the prosperity of America in its entirety. For example, The Federal Reserve Banking System did not shield the economy from the Great Depression and the Recession. Financial crisis is the very thing the Federal Reserve System was designed to protect the economy against it failed miserably more than once. The Federal Reserve System has too much power over the economy, they have the power to create and print as much money as they want which directly affects the money supply and steepens the U.S debt. Those people let greed influence their decision process which ultimately led to the fall of the economy once…

    • 1103 Words
    • 5 Pages
    Better Essays
  • Good Essays

    Almost seventy years after the worst economic crisis struck the world in the 1930s, history repeats itself again. The Great Depression that occurred in 1929 and today’s great recession have many similarities. Both had disastrous effects on the global economy. Like today, many years of economic deregulation paved the way for these turmoils and social troubles. Banks were giving away cheap credits without running any background information on their customers. People took advantage of this and started buying houses and other luxuries they couldn’t afford. Default in paying back their mortgage led to many problems such as real-estate crisis, rising inflation, soaring unemployment rates, and stock market crash.…

    • 681 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Us Recession

    • 899 Words
    • 4 Pages

    The U.S economy is recovering from one of the longest and deepest recessions since the end of WWII. The definition of a recession is, a general slowdown in economic activity, a downturn in the business cycle, and a reduction in the amount of goods and services produced and sold. This is precisely what happened to the U.S economy from 2007-2009. For the years leading up to recession, a then booming housing market lead some to believe a recession was inmate. Since the start of the recession, the United States has tried to regain stability in its economy, and implement fiscal and monetary polices to prevent future crisis.…

    • 899 Words
    • 4 Pages
    Powerful Essays
  • Good Essays

    “Historically, recessions have developed over time. This one seems to have developed overnight (Partilla).” This thought is thought to stress the fact that while recessions are at times rare, when they do occur they can have a devastating effect. A recession or economic downturn is defined as a period is temporary economic decline during in which trade and industrial activity are reduced. Economic recession is generally accompanied by a rise in unemployment, high inflation, and decline of the housing market. Otherwise known as “The Great Recession,” the recession in the United States from the year 2007 to 2009 negatively impacted the United States economy by significantly altering the US’s labor market, unemployment rate and recovery potential.…

    • 261 Words
    • 2 Pages
    Good Essays
  • Better Essays

    Since the beginning of the Industrial Revolution early in the nineteenth century the United States has experienced numerous recessions or panics. None of them were as severe or lasted as long as the Great Depression. There has been much debate over what were the causes of the Great Depression. Occurring in the 1930’s, the depression remains the most important economic event in United States history. There were many factors that caused the Great Depression; one of the causes was structural weaknesses and specific events that turned it into a major depression.…

    • 1276 Words
    • 6 Pages
    Better Essays
  • Better Essays

    The Great Recession

    • 2033 Words
    • 9 Pages

    When everyone thinks of a recession they think of the great 1930’s depression and the causes of it. However, just recently back in 2008 the United States also felt the effects of a recession that still lingers today. A recession is defined as a significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP). With this definition we see that in half a year we could falter into a recession at any time. So what caused the recession of 2008? First we have to look at when it started…

    • 2033 Words
    • 9 Pages
    Better Essays
  • Good Essays

    The Recession of 2008 caused widespread panic and distress globally. Trillions of dollars were lost during this time. It was a frightening time for people because they were unsure of what was to come regarding their situations. These losses of money lead to a decrease in consumer spending, which decreased the GDP. This then invoked companies to lower salaries and cut large numbers of their employees. The huge loss of jobs made the unemployment rate skyrocket. All of these consequences of the Recession put many people under stress and lead to an increase in poverty in working class families. The documentary, Inside Job, covered the causes and consequences of the Recession in great depth. There are many underlying causes that lead to…

    • 373 Words
    • 2 Pages
    Good Essays