Impact on EU Governments The GFC caused a decrease in government revenues, but an increase in government expenditures in terms of GDP in 2008 and 2009, which significantly deteriorated deficits ... ... middle of paper ... ...wever, at the end of 2008, Germany was hit by the crisis through two channels; 1) Finance as many banks were overexposed to toxic speculative papers originating in the U.S and Ireland. Both private banks, such as Commerzbank and Hypo Real Estate, public banks had to be rescued by the government’s public guarantees costing €400 billion and 2) Export industry as the international demand decreased significantly . Although, the spending in the financial sector could harm Germany’s government debt in short-term, the debt was expected to maintain its position with low interest rates and capital gains from privatisation. With a strong financial position, Germany was expected a balanced budget, after spending on recovery plans. Though, Germany’s government debt to GDP kept rising since 2008 until 2011 from 64.9% to 82.5%, then decreased by 2.5% from 2011 to 2012 .
The complete loss of investor confidence impacted stock markets globally. Securities suffered large losses during late 2008 and early 2009. As the restrictions on credit gr... ... middle of paper ... ...factoidz.com/what-caused-the-great-recession of-20082009/>. Nabli, Mustapha K.. The Great Recession and developing countries: economic impact and growth prospects.
According to USA Today, “Housing crisis deepens. Banks and hedge funds that invested big in sub prime mortgages are left with worthless assets as foreclosures rise. The damage reaches the top echelo... ... middle of paper ... ...ate wealth (GovermentStatSheet). Since then the American political economy has grown, strengthened, and reinforced the future since the learning period of 2008. The great recession is proven to be a point in time when financial funds didn’t exist but the United States government has analyzed and can now predict identical causes and annihilate them before they arise again.
Policy changes incorporated with the economy are often a major factor. In this case, all roads lead to one major problem: Deregulation. Deregulation originating from the Carter and Regan Administrations, combined with a decrease in consumer spending, and the subprime mortgage bubble all led up to the major recession of 2008. Looking back to the Carter and Reagan Administration’s, you can begin to see where the Recession originated from. Prior to the Reagan administration, the United States economy experienced a decade of rising unemployment and inflation.
Housing inflation were inversely related to both foreclosure and delinquency rates. The rates dropped drastically over the years which led to increased house prices that almost collapsed the mortgage programs. As a result of the crisis in subprime mortgages, the Troubled Asset Relief Program (TARP) program was introduced in the beginning of October 2008 by the United State government that enabled the purchase of equity and as... ... middle of paper ... ...s that had surpluses back to the country. Works Cited Kaminsky, G., & Reinhart, C. (1999). The Twin Crises: The Causes of Banking and Balance of Payment Problems, American Economic Review, 89, (3), 473–500.
Background of financial crisis In 2008, a severe financial crisis arose in American. By the high level of interconnection between each economy, this financial crisis caused several financial problems in different countries at the same time. Gary Yates (2009) pointed that the UK is having a worse economic growth caused by a snowball effect of banking crisis. Facing this situation, economists have summarised the fundamental factors of this financial crisis which includes: different development levels of each country around the world; underestimation and incorrect analysis of financial risk; liquidity risk and unwillingness of lending were faced by banks after lots of investments went bad; too much debt were created and `shadow banking ‘system were set up unregulated. The failure of UK’s financial regulation system The reasons of the failures Although the UK financial system is extremely good in terms of economic ... ... middle of paper ... ...again is essential for the UK to avoid a crisis.
By examining the nation’s economic struggles during this time period (2007-2009), it will conclude that the current macroeconomic situation deals with unemployment, which is a direct result of the recession. It can be argued that the economic hardships of the great recession began when interest rates were lowered by the Federal Reserve. This caused a bubble in the housing market. Housing prices plummeted, home prices plummeted, then thousands of borrowers could no longer afford to pay on their loans (Koba, 2011). The bubble forced banks to give out homes loans with unreasonably high risk rates.
By reference to strategic management literature, discuss the extent to which events associated with the ‘credit crunch’ and banking crisis of 2008 have witnessed a fundamental re-appraisal of banks’ and building societies’ organisational purpose and corporate governance. In the previous 10 months, there has been a worldwide credit crunch which has affected every individual and organisation. A good definition of credit crunch would be one provided by Simon Nixon (2008), “The credit crunch started in August 2007. The term refers to the sudden contraction of credit across the financial system as banks became increasingly reluctant to lend. It has left individuals and companies facing potentially higher interest costs, or struggling to get access at all.” The credit crunch can occur for several reasons such as; “sudden increase in interest rates, direct money controls by the government or drying up of funding the capital market”, (www.thismoney.co.uk).
In December 2008, the National Bureau of Economic announced that the economy had entered into a recession a year ago in December 2007. It took a year for the government to declare that we were in a Recession. The United States was very close to a financial market meltdown and economic collapse in the late 2008 and early 2009. United States entered a severe recession accompanied by considerable job losses, skyrocketing unemployment, lower wages and a mounting number of American families at danger of foreclosure and poverty. The unemployment rate increased from 4.9% in December 2007 to 9.5% in Jun 2009.
During September 2008, a worldwide financial crisis erupted and was succeeded by the most severe global economic recession for decades. Governments in the euro area intervened with a extensive mixture of emergency acts to stabilise the financial sector and to soften the effect of the consequences for their economies. This paper examines the start of the Great Recession, EU governments’ general response to the economic crisis and their ultimate effects. This paper aims to draw a conclusion on whether or not fiscal policy, implemented in many European countries during the Great Recession of in 2008-9, was the best choice. Fiscal policy involves changes being made in government expenditure and or taxes with the aim of reaching certain economic objectives, such as stable prices, low unemployment and ultimately economic growth (Arnold, 2012).