The Economic recession of 2007
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The Economic recession of 2007
Thesis: The Economic recession of 2007, which was caused by mismanagement of the global economy, resulted in the collapse of major financial institutions and caused unexpected suffering among the ordinary people.
Causes of the economic recession
Progression of the economic recession
Effects of the economic recession
My personal opinion
The Economic recession of 2007
The economic recession of 2007, which is also known as the great recession, began in 2007 and ended in the mid 2010.The great recession had profound impacts on the political, economic and social aspects of the world. The recession affected both the developed and developing countries, with the developed countries experiencing the biggest impact. The recession of 2007 was characterized by high levels of unemployment, a sharp decline in economic growth, increased number of poor people, and collapse of businesses. The Economic recession of 2007 was caused by financial and economic mismanagement that led to a near collapse of the global economic system. The Economic recession of 2007, which was caused by the mismanagement of the global economy led to the collapse of major financial institutions and brought untold suffering among the ordinary people.
According to the US National Bureau of Economic research, the 2007 economic recession started as a result of poor management of the global monetary system and uncontrolled lending practices by major financial institutions. In developed countries, mortgage funding was competitive, uncontrolled and opaque resulting in risky lending. Financial organizations developed valuation systems that encouraged the relaxation of lending standards thus prompting immense procurement of substandard loans. Consequently, the subprime lending caused credit boom that eventually started the 2007-2008 financial crisis. The financial and economic policies developed by America and other developed countries played a key role in starting the great recession. Governments of developed countries took huge loans and created large budgetary deficits that caused extensive strain on their economies. These borrowing policies were instrumental in causing the great recession (Hank 42).
The emergence of the 2007 economic recession took many governments and economists by a surprise. There were no concrete emergency mechanisms that would have been employed to combat its effects promptly. The recession raised deep concerns in the world as businesses collapsed and consumer confidence eroded. By mid 2008, USA was in the midst of a biting recession while major financial institutions were on the precipice of collapse. The GDP of developed nations started to decline while many organizations started to post negative financial results. Some financial institutions such as Lehman brothers went bankrupt and collapsed. In the same period, the economic recession spread throughout the world, affecting both developed and developing nations. Many economists predicted the risk of a total collapse of the financial and economic systems similar to the great depression that was experienced in 1930s. Governments from the affected nations reacted by creating massive stimulus packages to assist ailing organizations from collapsing. In addition, they increased the supply of money and loosened monetary and fiscal policies. Although the governments’ intervention was instrumental in curbing the collapse of the economic system, they played a major role in increasing national debts and deficits that are currently being experienced by the economies of many countries. By mid 2009, the economic pointers indicated that the financial crisis had stabilized and the good performance of the organizations that were on the brink of collapse showed that the global economy was recovering. By 2010, the recession had been contained and appropriate policies were developed to ensure that that the crisis did not recur (Read 13).
The Economic recession of 2007 had several political, economic and social consequences. The recession resulted in poor performance of the economic sectors resulting in low GDP and a decrease in economic growth. Although the recession started in developed nations, its effects were palpable in poor countries that depend on financial AID from developed nations. A decrease in financial AID to poor countries resulted in increased levels of poverty and frustrations among the ordinary people. Governments and organizations started to retrench their employee in order to cut cost, a fact that increased the levels of global unemployment. High unemployment levels affected the productivity of the global economy. The world experienced political instability as a result of the problems that the common people were facing as a result of the global economic downturn. Some political leaders were ousted from power through popular revolutions while others lost through democratic elections. For instance, Tunisian president Ben Ali was one of the victims of popular revolutions that were triggered by hard economic circumstances that their subjects were facing. The 2007 economic crisis had numerous social consequences that shook the foundation of the society. High poverty levels resulted in family break ups, increased levels of crimes and other social evils such as child prostitution. As a result of the 2007 economic recession, the ordinary people have become more careful and analytical in their investment decisions. In addition, they have become sensitive and careful about their political decisions as they are likely to elect leaders whose policies favor economic growth. For instance, the economic policies that were presented by each political party’s manifestos were among the major factors that influenced the results of the 2012 elections of USA (Wallison 30).
In my opinion, there is a minimal probability that another recession would occur. Governments have developed long term financial and economic mechanisms that are essential in checking and correcting problems in economic and financial systems. For instance, financial institutions are currently under close scrutiny by regulatory agencies and so they cannot be allowed to develop dangerous financial policies.
In conclusion, the Economic recession of 2007 affected all economies and caused untold suffering among the ordinary people. The effects of the 2007 economic recession include the collapse of several major financial institutions, decreased consumer confidence on financial institutions, diminished consumer purchasing power, high levels of unemployment, and political instability. The lesson learnt from the destructive 2007 economic recession was essential in developing mechanisms that will arrest any possibility of another recession occurring.
Hank, Paulson. On the Brink. London: Headline, 2010.
Read, Colin. Global financial meltdown: how we can avoid the next economic crisis.
New York: Palgrave MacMillan, 2009.
Wallison,Peter.Causes and Effects:Government policies and the financial
crisis.Washington DC:American Enterprise Institute,2008.