The Great Recession

StudentName’s

TheGreat Recession

Asmaller number of countries experience slumps in their economiesevery few years. These economic downturns are as well calledrecession. Whenever there is a recession, most firms lay off theiremployees, consumers cease to spend and a good number of thepopulation of the country experiences a financial tweak. This isexactly what happened to Americans during the great recession whichlasted from December 2007 to June 2009 (Paul,Par).There was as well a recession in the U.S during other times, but mosteconomists believe that the Great Recession surpassed all of them.Recession is basically a slump in economic action which is pigeonholed by not less than two successive quarters of drop in the grossdomestic product (GDP) of a country. This paper will state the factsabout the great recession. This project is about warning people tolearn on how to invest in case of another recession.

Recessionresults in many economic problems. Consumers stop spending, as aresult of an economic shock due to loss of jobs, a huge drop inpersonal earnings as well as a fall in business revenues. An economicproblem occurs when products such as shares or stocks andreal estateare valued at a lower value than their actual value. During thistime, there is less business investment due to the drastic fall ofbusiness profits. This in turn results in insolvency in both personalas well as business level. The great recession as well led to higherrates of joblessness to Americans since many people were chasingafter few jobs (Paul,Par).

Thegreat recession was hugely blamed on housing ‘bubble’ of 8trillion dollars. The prices of homes fell drastically after a run-upof the same in the beginning of 2000. This eventually led to manymortgagors not being able to pay their loans. The economy cratered,crushing the real estate as well as stock markets. This destroyedmost family wealth and left many Americans jobless. The loss ofwealth led to sharp reduction in consumer spending. The U.S labormarket lost about 8.4 million jobs in 2008 and 2009. This amounted tojob loss of about 6.1% of all payroll employment. The great recessionas well led to a crush in the stock market and most of the bankscollapsed. This led to a great international trade imbalance. Theoverflowing of the housing bubble and the fall in the stock marketled to the drastic fall of family wealth as well (Paul,Par).

TheGreat Recession was caused by the collapse of a huge credit bubble -a bubble powered by financial organizations so enthusiastic to loanthat they dropped their standards so as more borrowers would qualify.Banks made huge money by selling loans to Wall Street thus leading tocollapse of financial institutions. Wall Street in turn startedlending money and subprime mortgages to many American borrowers at alow rate. Borrowers thought that they’d refinance all over againbefore the monthly payments increased rapidly. But this did nothappen. The prolonged economic downturn and low rates made theAmericans to fear for their wealth (Charles, par).

TheU.S government housing policies got involved and limited regulationson lending. This did not help at all. The government raised taxes soas to balance the budget and this became another pinch to Americanssince the recession did not end immediately.

WorksCited

Charles,Forelle. In European Crisis, Iceland Emerges as an Island ofRecovery. WallStreet Journal. 2012.

Paul,Krugman. Triumph of the Wrong. TheNew York Times. 2014.