Cause and Consequences of the Great Recession

Cause and Consequences of the Great Recession 1.0 Introduction There was a recession in the United States (US) at the end of 2007 (Verick and Islam 2010). McKean (2010) noted that a healthy economy will proceed into a period of high growth, slow growth or no growth. Power (1996) commented that the economy is needed to be contracting and expanding in order for the economy to be healthy. When the contracting period has last for a long period of time (such as at least two consecutive quarters of a year or 6 months in a row), the economy is considered as a recession (Arnold 2008; Brainard and Perry 2001). According to National Bureau of Economic Research (NBER) (2010), recession was defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product (GDP), real income, employment, industrial production and wholesale-retail sales. According to Wang (2009), the US recession has leaded to a global financial crisis shattering businesses and consumers confidence in many countries such as in European Union, China, Japan and Asia countries. As a result, it has been named as the Great Recession which has caused financial meltdown in the US and was spread out quickly affecting almost every corner of the world (Kurki et al 2009). The great recession was seen as the worst economic downturn since the great depression that the world was in recession after World War II (Wang 2009; Verick and Islam 2010). According to economists, this episode of great recession was resulted from a sudden busting of house bubble in US, where the house bubble was caused by rapid growth of improper regulation on sub-prime mortgages (Merriam 2009; Wang 2009; Whitney 2007). This episode of great recession have proven and shown the accuracy of Greenspan prediction who was the former Federal Reserve Chairman predicting that US has one-third probability getting into recession at the end of 2007 (Torres 2007). In order to have a better understanding on the great recession, causes and consequences of this recession will be analysed at the following chapters. 2.0 Causes of the Great Recession Apparently, US was faced many severe problems including banks on the verge of bankruptcy, high record levels of public debt, a falling stock market, a plummeting dollar, frozen money markets and imminent threat of a recession (Lyons 2009; Stiglitz 2010; Taylor 2009). According to Verick and Islam (2010), the global financial crisis was greatly affected by global imbalances, perceptions of risks, interest rates, and regulation of the financial system (Figure 1). With references to the Figure 1, causes of the great recession was summarised as below: 2.1 Housing Crash US housing market are a major determinant of consumers spending and rate of economic growth (Congressional Budget Office 2007). There are various factors affecting house price to rise much faster than consumer incomes, and thus it was created overvalued assets (Eklavya 2008). Taylor (2008) noted that US house prices were raised rapidly until 2006 and experienced a fall of house prices after the boom. Figure 2 shows the trend for house price for 1991 to 2007. When house prices fall to correct the imbalance, it had a significant impact on consumers spending where people cannot remortgage to obtain extra capital for spending (Taylor 2008). 2.1.1 Subprime Mortgages Burst According to Eklavya (2008), there was no regulation of subprime mortgages where the mortgage industry was able to sell mortgages without considering whether the buyers could pay back. Global research (2009) was estimated the value of US subprime mortgages at $1.3 trillion on March 2007, but there was over 7.5 million first-lien subprime mortgages outstanding. It was because the subprime mortgage was spiked to nearly 20% of all mortgage originations during the peak of US housing bubble (Smith 2007). In figure 3, it shows that subprime mortgage was expanded significantly during the period of 2004 to 2006. The huge majority of the subprime mortgages were caused massive foreclosures, and thus it was greatly affected the institutions and independent mortgage brokers which were not covered by the Community Reinvestment Act (Pressman 2008). Thus, it was indirectly affected a slow growth or even started to fall on consumer spending and investment (Taylor 2009). 2.1.2 Low Interest Rate Economists commented that US monetary authorities had adjusted the interest rates at unprecedented levels which created a debt-finance consumption boom leading the way in boosting housing bubble (Taylor 2009; Eklavya 2008; Kurki et al 2009). Similarly, some economists argued that interest rates in the US were stayed too low for too long and even stood at just 1 per cent in 2003 and 2004 which activated the great recession (Figure 4) (Elmendorf 2007; Taylor 2009; Verick and Islam 2010). Verick and Islam (2010) criticized that the monetary policy in US was failed to tackle the overvalued asset bubble, and at the same time contributed to the rapid growth in subprime mortgages. 2.2 Credit Crunch McHugh (2007) commented that high subprime mortgage defaults in US had caused credit crunch which referred to a sudden shortage of funds resulting a decline in loans available. According to Bloom (2008), many investment banks and commercial banks were faced huge losses due to the risky mortgage loans. Therefore, banks were reluctant to lend money to anyone and even to other banks leading a shortage of funds in the money markets (Smith 2007; Verick and Islam 2010). Whalen (2007) commented that the shortage of liquidity in the finance sector had caused borrowing to be more difficult and more expensive which had leaded to a lower consumer spending and investment. 2.3 Budget Deficit and National Debt According to GAO (2009), the US national debt was stood at 65% of GDP for 2007 and it was even worst when pension liabilities were included. With such a large deficit, US government had less room for expansionary fiscal policy because demographics worked against fiscal stability and the stage of economic cycle worsened the deficit (Auerbach 2009). Kurki et al (2009) noted that the deficit has caused difficulties in attracting capital flow because Asian investors who were aware of the US deficit had slowed down the capital flow to US and contributed to devaluing dollar. Thus, it indicated that there is a fundamental imbalance between domestic production and consumption which had become a constraint for future economic growth (Auerbach 2009). 2.4 Devaluation of Dollar According to basic economic theory, a decrease in exchange rates will eventually help to increase exports and stimulate growth in the export sector (Grant and Vidler 2003). However, the depreciating dollar had contributed to cost-push inflation and declining in living standards where consumer goods were more expensive leading to lower spending power of individuals (Bloomberg 2010). Bloomberg (2010) argued that decline in dollar was resulted US to become less competitive compared to its trading partners. 3.0 Consequences of Great Recession Since US went into recession at the end of 2007, it had caused a crisis on economies across the world (Verick and Islam 2010). According to Taylor (2008), middle-incomes countries (especially in Central and Eastern Europe, and the Commomwealth of Independent States) were severely affected (Figure 5), where as low-income countries such as Uganda and Ethiopia were able to grow strongly despite the downturn (Figure 6). Verick and Islam (2010) noted that although most low-income countries have evaded from recession, these countries had experienced a slow growth in economy due to the negative implications for poverty. Lockstein (2010) argued that, in overall, the smaller and more open economies countries had been hit stronger, whereas the larger emerging economies countries could be survived by the supporting from domestic demand and government spending. It had been noted that China and India were able to recover faster from the great recession (Taylor 2009; Verick and Islam 2010). Llaudes, Salman and Chivakul (2010) commented that the great recession had caused various impacts to different countries. Thus, an analytical study on the consequences of great recession towards US and India have stated as below: 3.1 The United States According to Gulzar (2010), the great recession had caused a great impact on US labour market. Laibson (2010) noted that although government had adjusted the inflation rate causing the economy grew 2.2% in 2009 Q3, 5.6% in 2009 Q4, and 2.7% in 2010 Q1, the unemployment rate had stubbornly remained high. The unemployment rate had risen from 9.5% in June 2009 to 10.1% in October 2009, before it felt back to 9.5% in June 2010 (Laibson 2010). Altig (2010) commented that the disconnection between the demand and supply of workers which was reflected in statistics such as the hiring rate, the layoff rate, and the unemployment rate can be expressed by the Beveridge curve (Figure 7). Altig (2010) argued that, with the given average number of job opening in April and May, the unemployed were expected about 10.4 million instead of 15 million as stated in Figure 7. Some analysts have commented that the unemployment benefits policies should responsible for abnormally high unemployment rates (Altig 2010; Gulzar 2010; Verick and Islam 2010). Valletta and Kuang (2010) estimated that extended unemployment benefits may have increased between 0.4% and 1.7% of unemployment rate. Krugman (2010) argued that there is a strong tendency of high unemployment to become permanent because those who have out of work for a long enough periods have become less productive and less competitive in the job market. Ball (cited in Krugman 2010) prompted a problem that high unemployment tend to increase the level of structural unemployment, if there is a weak policy, thus inflation will increase much higher unemployment rates than before. 3.2 India During great recession, India economy was turning down because of Indian companies with big tickets dealing in the US were seeing their profits margin shrinking, and majority of Indian companies have major outsourcing deals with US (Malik and Pandit 2010). According to Alex and Kumar (2009), Indias merchandise has been exported to ASEAN (52%), followed by the EU27 (21%), and the US (13%). However, Malik and Pandit (2010) noted that the global crisis has caused the USs share felt to 11% (March 2009), which was even lower than the United Arab Emirates (13%) (Figure 8). Figure 9 shows that all of the products (except gems and jewellery) were experienced a major contraction during the great recession: petroleum and crude products have the largest contraction (about 45%), whereas agriculture and allied products contracted by 28%, engineering goods exports by 22%, chemical and related products by 9%, and textiles by only 2% (Alex and Kumar 2009). Besides, Indias financial market was hit badly from the great recession where share market was fall, rupee was weakening again dollars, and banks were faced severe cash crunch resulting in shortage of liquidity in the market (Eklavya 2008). Due to Foreign Institutional Investors (FIIs) were the main investors for India, the investors (majority based in US and Europe) had withdrawal their money from Indian Stock Markets to meet their liabilities at their home countries (Mohanty 2009). Alex and Kumar (2009) commented that rupee was lost its strength against dollar when FIIs converted their invested money into dollars. However, India was able to recover faster from the great recession due to Indian Banks were escaped from the ill-effects of subprime mortgage crisis where major Public Sector Banks exercising extremely caution in giving loans to needy people or companies (Eklavya 2008). 4.0 Conclusion In the age of globalisation, every country is affected by the fluctuations of world economy where no country can remains isolated (Eklavya 2008). Thus, great recession has caused a vast impact to the world such as fall in demands, shortage of cash, decreasing growth rate, and high unemployment rate (Taylor 2008; Verick and Islam 2010). On the other hand, recession can help to transform country or businesss outlook for the future (Kurki et al 2009). Although the recession has turned down the growth process, it helps to generate ideas and strategies stimulating the economic growth and maintaining stability of the market in order to become more competitive in the world.

Elective Affinities by Johann Wolfgang Von Goethe Essay

Edward and Charlotte are a middle-aged couple, happily married, and who live comfortably in a considerable estate in early 19th century Germany. Edward was an only child, and thus was accustomed to getting what he wanted from life. Charlotte was a strong, level-headed woman, who, in spite of being at about the same age as Edward, displayed a character that was far more mature. The characters lived a relaxed, nobleman’s life, and Charlotte spent most of her time arranging and decorating the area around their land. The couple had loved each other in the past in their youth; however they were married to different people to satisfy the wishes of their parents. Both of their spouses died early, and Edward, after traveling abroad, came back and married Charlotte. The two were discussing their great fortune at still having time to cherish the moments they never had in their youth, but Edward had other plans. His best friend, the Captain, wanted a job that would suit his multiple talents, and Edward felt obliged to hire him and have him stay with them. Charlotte opposed the idea at first, but assented afterwards, but revealing to Edward that she felt the same with Ottilie, her niece who was not adjusting very well to school. The Captain was the first to arrive at the estate. In little time he got acquainted with his surroundings, and set about to change them to what he felt was better taste than what Charlotte has done. Charlotte became busy with other things, including correspondence with officials from the school where her daughter, Luciana, and Ottilie were studying. Luciana was a great student and she was always at the top of her class. Ottilie, on the other hand, was a shy and timid student, but the Assistant to the superior saw a potential in Ottilie that nobody else did. Edward, Charlotte and the Captain were enjoying each other’s company, and on one particular discourse they discussed among them the elective affinities, the tendencies of chemical species to combine with certain substances in preference to others. They related the somewhat obscure subject matter to themselves, and whether these affinities apply to human relationships too, unknowingly foreshadowing their ultimate fates. Ottilie arrived at the estate shortly afterwards, and although a timid girl, she was exceedingly beautiful that the company was inspired by her presence. She quickly became efficient at managing the household, which delighted Charlotte, who was spending more and more time with the Captain due to her desire to see the fruits of his plans for the estate. Edward then, found himself spending more time with Ottilie, who he quickly grew fond with. The plans for remodeling the estate were numerous, and the four all contributed plans towards the final end. Ottilie’s suggestion on the placement of a new house was unexpected because she was so timid, but everybody agreed with it. The Captain busied himself with the remodeling, and although he felt an attraction to Charlotte he thought the better of it and tried to stay away from her. However, he resolved to finish the new house’s foundation on Charlotte’s birthday, which he did. The day after Charlotte’s birthday, two visitors arrived at the estate, the Count and the Baroness, who were unmarried lovers as well. In observing their hosts’ situation, the Baroness deduced that Edward and Ottilie were lovers, The Count meanwhile had noticed the Captain’s usefulness, and intended to hire him, much to the hidden despair of Charlotte who was also very much in love with the Captain. With Ottilie still on his mind, Edward nevertheless goes to his wife and spends the night together with her. The day after, Ottilie revealed to Edward that she loved him, something that he was exceedingly happy about since he shared the intense feelings as well. Charlotte and the Captain had an adventure of their own, in which the Captain kissed her and apologizing afterwards. Charlotte recognized that she had an obligation to her husband, and thus cut short the affair with the Captain. Ottilie and Edward estranged themselves from the two others, while their passion grew with letters and secret correspondence with each other. Edward became busy with the preparations for Ottilie’s birthday, as the Captain was making preparations for his departure to the Count. On Ottilie’s birthday, Edward was ecstatic—he prepared an extravagant gift of cloth and made preparations for a big fireworks display. When a certain embankment fell to the water and almost caused the drowning of a party-guest, everybody felt that further festivities were no longer proper, except the now madly-in-love Edward. After the Captain’s departure, Charlotte tried to save their marriage by sending Ottilie away, but she failed when Edward, not knowing what to do, decided to go away himself. Otillie, saddened by the loss of her love, nevertheless kept her faith that he would come back for her. Edward wrote a letter to Charlotte that kept Otillie with her until Edward’s return. Charlotte learned shortly after that her night with Edward during the Count’s visit conceived a child, and through Mittler, her ambassador at the moment, relayed it to Edward, Mittler, a once-minister who thought all marriage is sacred, set to Edward to try to mend their matrimony. Upon learning of the news, Edward is more confused and sets off with a death wish to join the armed forces. By this time, the Architect, a pupil by the Captain, had taken over remodeling of the estate. With an affinity for the arts, Otillie becomes attached to the Architect, albeit only thinking of him as a comfortable brother. In Edward’s absence, Luciana returns from school with a bridegroom, and she magnifies the difference between her and the timid Otillie. After Luciana left, the Assistant comes to see Otillie—he too is in love with her, but Otillie’s heart is unattainable. She becomes attached to Edward and Charlotte’s baby, Otto. After his stint in the army, Edward returns with a clear mind—he is going to take Otillie for himself, and engages his best friend—now a Major—to help him get a separation from Charlotte. An accidental encounter along the lake reunites Edward and Otillie, but afterwards Otillie’s carelessness caused the drowning and death of Otto. When the Major arrives to tell Charlotte about Edward’s proposition, she is still shaken by the death of her son. Otillie, in guilt, resolved to renounce Edward and her love for him after the Major left. Plans were made to return Ottilie to school; however, Edward caught her in a hotel on the way there. Ottilie had renounced Edward, and thus spoke not a word to him, but she went back to the estate. Once back, Edward, the Major and Charlotte tried to make her speak once more, but she did not. In fact, she was starving herself secretly, and she died afterwards. In a short time, Edward, who could not live without Ottilie, found no reason to live either, and followed his love to the grave.

Bad Grades Essay

I am writing to offer an explanation for a change in academic performance that is noticeable on my high school transcript. From the start of my freshman year until the end of my junior year, it is evident through analysis of my transcript that I have been an above average student consistently throughout my high school career. However, starting at around August 2010, problems arose in my family of which I believe made it impossible for me to continue my 100% focus on school. Halfway into my senior year, my father was laid off from his job. Since he was the only source of income at that time, our family of five was forced to move from our comfortable lives at our four bedroom house into our grandmother’s two bedroom house. This was a drastic change for all of us, as we have never shared a house with anyone, especially one of this size. I no longer had a room in which I was able to do my schoolwork in silence. This drastic change, I believe, interrupted my focus on school because of the attention it required from me. During my first semester I was often required to miss school by my parents, reason being that I had to help out in the movement process and had to visit an ill uncle out of town. I take full responsibility of my underperformance during the first semester of my senior year and am not look to make excuses. My main goal in making this letter is just to offer insight on what it is I believe influenced my underperformance. I sincerely ask you to consider me as an applicant and to not let this recent semester define me as a student. I greatly appreciate your time in reading this letter.

Essay on Conflict in A Dolls House by Henrik Ibsen

Conflict in A Dolls House by Henrik Ibsen In every play, there is always conflict. Without it, the story would simply be dull and boring. There would be no lessons learnt and nothing that keeps the story going. Everyone has different opinions and perceptions about particular things and this is why conflict occurs – everyone is human and that is the reality. The different kinds of conflict include the conflict between individuals, within the individual and conflict with society. In Henrik Ibsen’s play, A Doll’s House, there is evidence that all three of these kinds of conflict exists. Firstly, Helmer objectifies Nora. For example; â€Å"My darling. No one else’s. My sweetheart, my treasure.† (Act 3 Lines 207-208). He also†¦show more content†¦Like father – sh! – like daughter. No religion, no ethics, no sense of duty.† (Act 3 Lines 376-378). Although it is hard to see, money is the major determinant for conflict in this play. That is, if everyone had money, there wouldn’t be any need of struggle. â€Å"I’d a bedridden mother and two small brothers. We couldn’t wait for you, Nils. You’d no prospects then†, Mrs. Linde exclaimed to Krogstad (from Act 3 Lines 31-33). This shows that Mrs. Linde wouldn’t have been married to her husband if he didn’t have money. Money has also been the main source of destruction for Torvald and Nora. Nora wouldn’t have had to borrow money if they did have money to spend. Torvald stated; â€Å"That doesn’t mean we’ve money to burn† and â€Å"has my little songbird been spending all my money again?† (Act 1 Lines 16-21). Another type of conflict which is present in â€Å"A Doll’s House† is conflict within oneself. It arises when a person is unsure of what to do and keeps on battling with it themselves. A prime example of this is Nora; she was fighting herself. â€Å"The children†¦ never again. Never. 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