Causes of Recession in Us; Its Political, Social and Economic Impacts
Essay Preview: Causes of Recession in Us; Its Political, Social and Economic Impacts
Report this essay
Causes of recession in US; its political, social and economic impacts
Financial crisis is defined as a situation in which supply of money is outpaced by demand of money .Financial crisis arises when investors sell off their assets or withdraw money from banks. Investors withdraw when they feel that their assets value will drop off if they remain in financial institution .It is believed by economists. Economic recessions are caused by a decline in, which is itself caused by a slowdown in manufacturing orders, falling housing prices and sales, and a drop-off in business investment. The result of this slowdown is falling employment, which causes a slowdown in retail sales. This creates a downward spiral in manufacturing and increased layoffs. A stock market decline (amadeo k. , 2012)There was major recession in world economy during 2008.It not only adversely affects major economy such as us but also affects economy of nation such as india which is a major importer of food products such as rice to US.
There were major financial crisis in US economy in 2008.There was increase in oil prices about $100 a barrel,a collapse in stock markets .The defaults on sub-prime mortgages have led to a major crisis in the US. Major banks were in trouble because people were unable to pay loans because of unstable income and poor credit worthiness . As USA is consumption based economy,2/3 GDP comes from consumers .Banks followed policy to cut credit card limits which forced consumers to preserve capital. As a result, businesses started to layoff workers which increases unemployment rate rapidly. GDP rate fell to 2% and about 63000 employees lost job. Major mortgage lenders such as Indy mac and Lehman brothers and other 81 public corporations declared bankruptcy in 2008.Sulphuric acid used in processes in such as steel processing, copper production and some other production increased in price three fold. The main reason for this inflation was agriculture failure, raising cost of imports from china and India .
Financial impacts on US economy :
Most of the people lost jobs became homeless. Unemployment rate was 10.2%
The real gross domestic products (GDP) declined in the third quarter of 2008 and by2009.
US domestic demand declined for five straight quarters . It broke the record and went down to 2.6% per quarter 1.9% in the earlier period.
Capital investment in the first quarter of 2009 dropped 23.2 year-to-year, nearly four percent faster than in previous quarter.
The global crisis posed a serious threat to international stability. Due to decline in value of dollar, economies of nations like India, China were severly affected .Stock market was crashed in India and China due to decline in in US economy. IT industries experienced 15% drop and BPO 30% drop in India. It was estimated that about one crore people lost job due to recession in India.
IT sector, financial sector, real estate owners, automobile industry, Investment and banking industries were severely affected.
Infrastructure was severely affected .Investors started withdrawing money from real estate. Most of the buildings which were left unconstructed as were left as they was no money in the market to complete construction of buildings. Big companies suffered big losses as most of the investors had lost faith in this industry and had stopped investing.
The recession has affected everybody in one way or another as families use lots of different strategies to cope with a new