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Economic Geography - Essay Example

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Summary
Concerns over the stability of the United States economy escalated as an epic of economic crisis shattered leading companies ushering in the economic recession of 2007. The end of December 2007 marked the beginning of the longest and deepest recession since 1930. By the start of…
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Economic Geography
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Table of Contents Table of Contents The Economic Recession of 2007 2 Introduction 2 Causes and Consequences 2 Conclusion 3 Works Cited 4 The Economic Recession of 2007
Introduction
Concerns over the stability of the United States economy escalated as an epic of economic crisis shattered leading companies ushering in the economic recession of 2007. The end of December 2007 marked the beginning of the longest and deepest recession since 1930. By the start of 2008, US experienced a decline in the labor market with over 325,000 job loss within a month (Isidore 2). Pressure piled in consumers’ personal income coupled with declining industrial production saw the gross domestic product decline to unexpected low levels. Just like the previous recessions in 1990-1991 and 2001, the 2007 economic recession has run deep into the economy becoming the longest financial crisis since the great depression in the 1930s (Kaiser 3).
Many states reacted by formulating large stimulus mechanisms in an effort to stabilize the economy. Other mechanisms were bailout of leading financial institutions, which included loans, guarantees and equity.
Causes and Consequences
The National Bureau of Economic Research and economists have indicated that the financial recession was triggered in the year 2006 by the broad economic malaise. The sharp deterioration in house prices reduced purchases of homes subsequently damaging the real estate market. Price deterioration extended to increased mortgage closure that subsequently led to massive losses in billions of dollars by leading banks in the country. The ultimate condition was tightening credit by financial institutions.
The Federal Reserve Bank began to cut the discount rate and funds rate to no avail. Major Banks such as Lehman Brothers started filing for bankruptcy. Other banks opted to undertake mergers and acquisition. JPM Chase acquired Bear Stearns as a strategy to survive in the crippling economy. As indicated by Cadieux & Conklin (9), the Federal Reserve cut the two rates below 2% by the fall of October 2008. In the same line central banks of leading world economies like China, Canada and United Kingdom as well as the ECB slashed their rates to rescue the global economy. These efforts had little impact as liquidity problem that proved to have spread widely and damaged operation and of financial institutions.
The rate of unemployment increased by 1.2% while an increasing number of distributions of jobless claims in the industry proved the economy was under recession (Cadieux & Conklin 12). The manufacturing and construction industries experienced large labor losses that significantly shattered business cycle. Although the level of unemployment declined as time moved to the end of recession in 2010, the nonfarm employment declined to 1.2 million as of February 2010 (Kaar 24). This indicates the severity of the crisis. Even after its end, the impact of the recession could be felt in the levels of nonfarm employment.
Conclusion
The economic recession of 2007 demonstrates the difficulty in restoring confidence in the global financial market once it is shattered. In an increasingly globalized economy, liquidity problem is a serious cause of solvency crisis for many financial institutions. The liquidity crisis extends to the balance of payment crises responsible for shattering the consumer confidence in the whole world.
This financial recession unveils the difficulty in restoring confidence in the global financial market once it is shattered. Today, leading economies record large deficits, slow growth and financial regulations that are not working. Failures to attend to the financial problems today raise fears of a looming economic downturn in the United States.
Works Cited
Cadieux, Danielle & Conklin, David. The Great Recession of 2007 to 2010 with Causes and Consequences. 2010. Web. 17.10.2012. Kaar, Manuel. A critical analysis of the global financial and economic crisis from 2007 to 2009 and its implications for the travel industry and associated businesses. New York: GRIN Verlag. 2010. Print.
Kaiser, Emily. The U.S. economy slipped into recession in December 200, and the downturn could be the worst since World War Two. 2008. Web. 17.10.2012 Isidore, Chris. It is official of Recession since December 2007. 2008. Web. 17.10.2012. Read More
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