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Economic crisis 2008 and housing
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In economics, a recession occurs when there is a slowdown in the spending of goods and services in the market. A recession causes a drop in employment, GDP growth, investment, as well as societal well-being. All recessions are caused by a specific cause, but the Great Recession of 2007-2009 was caused by a crash in the housing market. This crash was triggered by a steep decline in housing prices. All of a sudden, people bought houses because there was an excessive amount of money in the economy and they thought the price of houses would only increase. (Amadeo, 2012). There was a financial frenzy as the growing desire for homes expanded. People held a lot of faith in the economy and began spending irrationally on houses that they couldn’t afford. This led to overvalued estate and unsustainable mortgage debt. (McConnell, Brue, Flynn, 2012). The recession officially began when the 8 trillion dollar housing bubble burst. (State of Working America, 2012) Prior to that, institutions bundled mortgage debt into derivatives that were sold to financial investors. Derivatives were initially intended to manage risk and to protect against the downside, but the investors used them to take on more risk to maximize their profits and returns. (Zucchi, 2010). The investors bought insurance against losses that might arise from securities so that they could secure their money. Mortgage defaults unexpectedly skyrocketed, which caused securitization and the insurance structure to collapse. (McConnell, Brue, Flynn, 2012). The moral hazard problem arose. The large firm investors thought they were too big for the government to allow them to fail. They had the incentive to make even more risky investment. As a result, unemployment rose. In Decembe... ... middle of paper ... ...training by leading the world in research and development, university research, and innovation. Netherland, another one of the world’s best economies, has a high quality health system. (Hess, Frohlich, 2013). By enhancing health, education, and training, society will feel more confident and optimistic about their skills and potential. Their prosperity will bring more productivity and growth to their economy. Better health and education will also encourage more research and development and innovation. There will be technological and medical advancements and innovations. People will begin opening their own small businesses and companies, bringing more jobs to the economy. (Zakaria, 2011). Better government regulation and higher education, health, and training will strengthen a nation’s economy and society and allow them to run more efficiently in the global context.
The Great Depression was the biggest and longest lasting economic crisis in U.S history. The Great depression hit the united states on October 29, 1929 When the stock market crashed. During 1929, everyone was putting in mass amounts of their income into the stock market. For every ten dollars made, Four dollars was invested into the stock market, thats forty percent of the individual's income (American Experience).
The Great Depression and the Great Recession of the early 21st Century have many things in common. The Great Depression and the Great Recession both experienced good economic times before they crashed. Prior to the Great Depression, (1921-1929) the annual real economic growth was at 4.4 percent. Though less, the annual real economic growth prior to the Great Recession was at 3.2 percent. The banks before both times moved into new business lines. In the 1920s banks increased real estate lending and also increased investment banking. Prior to the Great Recession, (1990s-2000s) banks increased real estate lending and the securitization of mortgages. In both times, they were preceded by the innovations in consumer finances of their times. Prior to the Great Depression, (1920s) installment in consumer credit became more popular this included monthly payments. In the 2000’s prior to the recession, banks increased real estate lending and the securitization of mortgages. Pre Great Depression and the Great Recession they were asset bubbles in both real estate and tech-stock market. During the 1920s there was a surge in the Florida real estate as well as the stock market. The time during the 1990s and 2000s were a little different because of the fact that the tech stock market also took off and that the residential real estate grew.
The United States first major economic recession was the Panic of 1819, which led to unemployment and a political debate over how to approach the economic plunge. This happened due to the fact that banks throughout the country failed as a result of irresponsible banking practices. American banks gave out huge loans for settlers trying to expand their land and businesses. Many of the loans the banks gave out were not formally issued. Countless Western banks were very negligent with offering discount rates on loans to clients. This led to the foreclosures of farms and widespread personal and business failures. When Americans lost most of their money people were left jobless and homeless with many businesses going under. Debates
Since being founded, America became a capitalist society. Being a capitalist society obtains luxurious benefits and rather harsh consequences if gone bad. In a capitalist society people must buy products and spend money to keep the economy balanced, but once those people stop spending money, the economy goes off balance and the nation enters a recession. Once a recession drastically takes a downturn, the nation enters what is known as a depression. In 2008 America entered a recession and its consequences were severe enough for some people, such as President Barack Obama, to compare the recent crisis to the world’s darkest economic depression in history, the Great Depression. Although the Great Depression and the Great Recession of 2008 hold similarities and differences between the stock market and government spending, political issues, lifestyle changes, and wealth distribution, the Great Depression proved far more detrimental consequences than the Recession.
Throughout history there have only been two major economic downturns. The Great Depression and the Recession of 2008 both occurred due to poor financial policies and excessive spending. Both events left people with a sense of hopelessness and vulnerability. A comparison of the Great Depression Era and The Recession of 2008 reveals similarities in causes and effects economically, socially, and politically.
It can be argued that the economic hardships of the great recession began when interest rates were lowered by the Federal Reserve. This caused a bubble in the housing market. Housing prices plummeted, home prices plummeted, then thousands of borrowers could no longer afford to pay on their loans (Koba, 2011). The bubble forced banks to give out homes loans with unreasonably high risk rates. The response of the banks caused a decline in the amount of houses purchased and “a crisis involving mortgage loans and the financial securities built on them” (McConnell, 2012 p.479). The effect on the economy was catastrophic and caused a “pandemic” of foreclosures that effected tens of thousands home owners across the U.S. (Scaliger, 2013). The debt burden eventually became unsustainable and the U.S. crisis deepened as the long-term effect on bank loans would affect not only the housing market, but also the job market.
The national debt surfaced after the revolution when the United States government had to borrow funds from the French government and from the Dutch bankers. By 1790, the U.S. government accumulated millions in debt, but no one knew precisely how much. The Constitution mandated that the new government take over the debts of the old government under the Articles of Confederation.
Looking back to the Carter and Reagan Administration’s, you can begin to see where the Recession originated from. Prior to the Reagan administration, the United States economy experienced a decade of rising unemployment and inflation. Political pressure favored stimulus resulting in an expansion of the money supply. Reagan wanted to increase defense spending while lowering taxes, Reagan's approach was a departure from his immediate predecessors. Reagan enacted lower marginal tax rates in combination with simplified income tax codes and continued deregulation. During Reagan's presidency the annual deficits averaged 4.2% of GDP after inheriting an annual deficit of 2.7% of GDP in 1980 under President Carter. The real
What caused the Great Recession that lasted from December 2007 to June 2009 in the United States? The United States a country with abundance of resources from jobs, education, money and power went from one day of economic balance to the next suffering major dimensions crisis. According to the Economic Policy Institute, it all began in 2007 from the credit crisis, which resulted in an 8 trillion dollar housing bubble (n.d.). This said by Economist analysts to attributed to the collapse in the United States. Even today, strong debates continue over major issues caused by the Great Recession in part over the accommodative federal monetary and fiscal policy (Economic Policy Institute, 2013). The Great Recession of 2007 – 2009 enlarges the longest financial crisis since the Great Depression of 1929 – 1932 that damaged the economy.
The financial crisis occurred in 2008, where the world economy experienced the most dangerous crisis ever since the Great Depression of the 1930s. It started in 2007 when the home prices in the U.S. Dropped significantly, spreading very quickly, initially to the financial sector of the U.S. and subsequently to the financial markets in other countries.
First, when the stock market crashed banks began to shut down causing havoc because people were not able to make transactions. (Could not deposit or withdraw money.) Since people were not able to access their money people were beginning to get frightened on the possibility of not being able to pay their bills, or be able to provide enough to maintain food on the table for their families.
I. Introduction. How to use a symposia? The "subprime crisis" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain on a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis.
The Great Depression was the deepest and longest-lasting economic downfall in the history of the United Sates. No event has yet to rival The Great Depression to the present day today although we have had recessions in the past, and some economic panics, fears. Thankfully the United States of America has had its shares of experiences from the foundation of this country and throughout its growth many economic crises have occurred. In the United States, the Great Depression began soon after the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors ("The Great Depression."). In turn from this single tragic event, numerous amounts of chain reactions occurred.
With the global economy relying more than ever on brainpower and innovation rather than raw materials and manual labour as generators of wealth, a good education has become the key factor determining who will succeed and who will be left behind.
Before Economics 210, I really had no understanding or a slight background in how the economy works and how it fails. One of the major fails being the housing market crash leading to the 2008 – 09 recession. I had heard a great deal about how it was “bad,” along with how many people lost their jobs, but no one ever really went into depth of why it was bad, and maybe I guess I never had the curiosity or interest to ask until recently. Throughout this class, we’ve spoken about things from the first chapter to the 22nd chapter that all explain a little bit about the financial crisis. Now that it’s the end of class, we’re able to put everything together into one to understand the financial crisis at full, from the opportunity cost in in chapter one, to the aggregate demand curve in chapter 22, everything has been adding up.