The Global Recession - Report Example

Client’s 9 May Global recession has been triggered off across the globe by the sub prime crisis in the US, the crisis has not onlyaffected the US economy but it has also affected almost all the countries across the globe. The crisis has certainly given rise to the possibility of systemic financial crisis, which means that the credit crunch and the liquidity is only going to get worse from here on in. The housing crisis or the sub prime crisis is getting worse rather than cooling off, this means that the US economy is only going to get adversely affected and this in turn is going to affect all the major economies of the world. The labor market is also getting affected and this means that there will be less job opportunities in the future for the people seeking jobs. The sale of new homes has fallen by almost 50% in the US and people have stopped purchasing new homes in the US because of the housing crisis in the country. “The global financial crisis, brewing for a while, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems.” (Global Financial Crisis) Almost the whole world started living on a shoestring, deep pockets were reduced to mere pockets and lucre had certainly fallen short. Countless people got their pink slip while some other got their walking papers. These were some of the impacts of the recent economic crisis. This paper will compressively throw light upon the roots and causes of the economic crisis. AIG, Lehmann Brothers, Northern Rock, Goldman Sachs are some elite names that suffered the most because of the economic crisis also known as recession. Lehmann brothers filed for bankruptcy while AIG and a few other elites just hanged in there with the skin of their teeth. This economic crisis is still having repercussions on countries like Greece and Spain; there are a few other countries that have been not so severely affected by the same. The crisis triggered off because of unchecked debt, banks kept issuing loans to people who invested heavily in buying assets, several things were taken for granted but when proved otherwise there was hardly a place in the world to hide. “The facts are that approximately 6% of all mortgage loans in United States are in default.  Historically, defaults were less than one-third of that, i.e., from 0.25% to 2%.” (The Cause of the 2008 Financial Crisis) The subprime crisis triggered off because of excessive borrowing, there was no money to pay back and this is why so many financial institutes went flat broke. To conclude it is fair to say that the US never kept a watch on the lending, as an inevitable result of which equity in the country fell short this is exactly what triggered off the financial crisis. “While the world has not recovered from the second financial crisis since 2008, Kaushik Basu, the chief economic advisor to the prime minister, anticipates another tanking of global economy in 2014.” (Governance Now) Root Cause and Lessons Learned The Great economic depression triggered off in the year 1930 in the US, it was triggered off by the collapse of the US stock market which is now known as Nasdaq. It was the worst period of the US history, people slept on Hoover blankets and had no money to spend. The economy of the US recovered from this setback only to suffer from a similar setback of a lesser magnitude which is called recession. This paper will comprehensively throw light upon the roots and causes of the current economic crisis. All the major cause will be expansively presented in this paper. “While billions of dollars are being channelled into the financial system to prop it up, the Congress-led coalition government has no plans to alleviate the suffering of the urban and rural poor.” (International Financial Crisis) Overvaluation in real estate is perhaps the biggest cause of the current economic crisis, it is better known as the subprime crisis in the US. The likes of Lehmann Brothers and other financial services went bust because they kept issuing credit to the people who thought the property price would increase and they would be easily able to pay off the debt that they are borrowing. It did not turn out that way and there was a short of equity, this is exactly why the financial institutions went bankrupt. The overvaluation is the biggest factor that caused the current economic crisis. Factors like bad income tax practices have added insult to injury, bad mortgage lending also contributed heavily to this current economic crisis. “The way to address the root cause is to let house prices drop to where an average house is within the means of an average household.  (Or, alternatively, boost the income of the average household to the point that they can afford an average house.  But thats very hard.  Letting houses prices go on falling, although painful for everyone who owns a house or who has lent money to someone who owns a house, is very easy.)” (Root Cause of the Financial Crisis) The stock market slaughter has weakened almost all the major economies of the world and this is because of the housing crisis in the US. High oil prices have affected all the people across the globe and especially the importers, inflation has been constantly on the rise because of the high oil prices and the same has affected the global economy. The confidence of the investors has taken a real beating because of the financial crisis; people have stopped investing the way they used to before the financial crisis. Countries that trade with the US are going to suffer the most, countries like Mexico, Canada etc. The falling commodity prices will directly affect the commodity exporters in Asia, Africa etc. Credit has become out of trend and a person who has cash is called the king because of the credit crisis. “China’s rapid economic growth thus far resulted from high domestic saving and investments geared toward infrastructure, manufacturing, and exports. With slowing global consumer spending, the Chinese should encourage faster domestic consumption growth to sustain its manufacturing sector. Some of the increase in Chinese spending would be on non-Chinese goods and would benefit developed economy exports and earnings. However, China’s policymakers might raise trade barriers, in an effort to insulate the economy from a global recession. India is less exposed to a global recession because of its high import controls and tariffs, but a severe recession in western countries could provoke a more protectionist posture from Indian policymakers as well.” (Long term Implications of the Financial Crisis) All the leading companies will have to get accustomed to working in a tougher and a tighter environment than earlier. The global recession is severely going to affect the conditions of work in almost all the countries and instead of grumbling, everyone has to accept the reality and work toward making the situation better. The success rate of the companies is going to fall sharply, those who identify the opportunities and take the appropriate action earlier than others will succeed in their endeavors. These were the implications of the current financial crisis that the world is facing. Works Cited Global Financial Crisis (2012). Effects of the Crisis. Retrieved from: Governance Now (2012). Financial Crisis in 2012. Retrieved from: International Financial Crisis (2012). Financial Vulnerability Exposed. Retrieved from: “Long - term Implications of the Financial Crisis”. Cato Institute. Retrieved from: Root Cause of the Financial Crisis (2012). Wise Bread. Retrieved from: The Cause of the 2008 Financial Crisis (2012). Effects of the Financial Crisis. Retrieved from: Read More