Economic Crisis of 2008-2009

Economic Crisis of 2008-2009

Introduction

Economic crisis is a temporal phenomenon from which we can rarely escape. For a decade, we lived near a dozen of recessions which have had significant impact worldwide. An economic crisis is defined as a crisis which is characterized by a profound reversal of the economic situation of a country, a nation or a larger geographic area. In fact, economists estimate that a country is experiencing economic and financial crisis when the economic growth of the latter is negative for two consecutive quarters (Fallon, 2002).

When the U.S. catches a cold, it is the whole world sneezes. This saying of the 20th century was never revealed as true today as European economies falter under the impact of an economic crisis taking place thousands of miles. In the current financial system where everything is so interconnected, which began with a few ill-advised lending decisions in the U.S. has spread around the world and threatens to engulf it in another Great Depression (Green, 2010). The Economic Crisis of 2008 is believed to have occurred due to increased unemployment, high food and oil prices, a subprime mortgage crisis, horrible housing market, global inflation, and declining dollar value. Although countries all over the world are facing economic crisis but in this paper we are going to investigate the root causes of United States Economic Crisis of 2008 and 2009 and key policies that rescued the economy of United States.

Discussion

There is widespread agreement that a severe financial and real sector crisis began in 2008-2009, starting in the US and quickly spreading to much of the global economy. There are various views of the underlying cause of that economic crisis.

Causes

The cause of economic crisis can be the provision of easy access to credit by banks, most ostensibly, werckless borrowing, sharp reversal of this policy in 2006, poor financial regulation and spending by customers (Bezemer, 2009). A combination of the three caused the bursting of the housing market that rippled through the rest of the financial sector. In its early days, it was simply referred to as the sub-prime mortgage crisis. The main reason for the crisis in 2008-2009, when viewed superficially , we can assume is immense capacity of the consumer (which is important for the weakest of the EU and all countries of the former Soviet bloc) and the Mortgage and Housing (which is more important for the North American region) lending. This in turn has led to increasing production of consumer goods categories and volumes of housing construction by increasing the weight of credit money without actually having the physical security of virtual instruments other than securities and financial sector with a dubious reputation and effectiveness, and more looking like a massive fraud without reliance on the real economy. All these activities were aimed at trying to fix at least some physically realistic virtual software revenues were formed, which would continue for some time to operate this pyramid scheme. However, the possibility of achieving a limit lending led (since ...