One of the worst recessions in
the American history that haunted the US from December 2007 till June 2009, started
with the deflation and bursting of the $8trillion housing bubble. It is one of
the most horrifying economic downturns in the U.S history affecting millions of
people. The loss of wealth resulting from this downturn triggered the sharp cutbacks
in consumer spending. The decline in
consumption, accompanied by the chaos in the financial market and the
bursting of the housing bubble also caused the decline in business investment. With
a massive drop in consumer spending and business investment, the unemployment
rate peaked.
In 2008 through 2009, about 8.4 million
jobs were lost by the U.S market. The job loss during the Great Recession was
primarily due to a drop in family incomes, and a rise in poverty. The bursting
of the housing bubble and the stock market drop was an indication that there
was also a significant drop in family wealth.
As the confidence of consumers in
the American economic system was lost and the dollar value dropped, it
restricted the U.S companies from making investments overseas. A majority of
these companies diverted their liquid assets into hard assets such as real
estate, that later sank in value. To make the situation worse, during the
period from 2004 to 2007, gasoline prices doubled, causing transportation costs
and increasing the prices of a number of goods.
When the U.S government rejected
the bail application of Lehman Brothers that was linked strongly with international
banks, terror began to spread to other economies. Banks across the globe began
their march towards this downturn as the American economy tailed off and affected
other economies. The pessimism, panic and negativity spread by the media was
indicating that the American economy was headed for a recession.
The consumer confidence declined,
and people started cutting back on their spending. With great horror
surrounding the market, about 465 U.S banks collapsed during the economic
collapse including the Columbia Bank. A number of people had to lose a lot of
money with the failure of the banking system. A substantial decline in consumer
confidence and an increase in interest rates spread in the economy and
ultimately led to the financial market crisis.
According to a report compiled by
the U.S Financial Inquiry Commission in 2011 reported the reasons of the Great
Recession. The reasons listed in the report include inefficiencies in financial
regulation that includes the failure of the Federal Reserve System to branch
out the surge of noxious mortgages; dramatic collapse in corporate governance
that includes the fact that a number of financial firms acted carelessly and accepting
too much risk. This was a lethal combination of excessive borrowing and risk by
households and Wall Street that is held responsible for putting the financial
system on a collision with crisis; a lack of understanding of the financial
system and systematic breaches in ethics and accountability at different levels and stages. All these
factors contributed to the perfect squall of greed, fear and mistakes, causing the
Great Recession from which the U.S economy is still recovering.