Natural recession and an uneven proportion of wealth. Plus it didn't help that we got stuck with the "trickle down effect" for over 8 years (where the rich get tax breaks in hopes they will spend money in the economy to create jobs for the poor). That doesn't work because people tend to put their money where they will make more money and creating jobs isn't really a popular option for them...
Central banks create inflation, which leads to a boom. When entrepreneurs discover that the "new money" does not represent new wealth, there is an inevitable deflationary bust.
To make matters worse, central banks all over the world are currently in the process of inflating...which create another bust.
Here we go again:
http://www.youtube.com/watch?v=d0nERTFo … re=related
In short, the main cause of the current recession and socioeconomic crisis was the huge increase in subprime adjustable-rate mortgages and the CDO's (collateralized debt obligations) that comprised them. The number of subprime mortgages issued in 2005 and 2006 increased dramatically while prime mortgages actually decreased. Basically banks loaned money to people who would obviously default on those loans.
Mortgages are securitized by the gov't; they are pooled together and sold in blocks, which spreads the risk and uncertainty to those who take part. It created a huge widespread web of risk in that the securities are dependent upon their underlying subprime mortgage values. The value of the CDO's and their securities decreased and were miscalculated to begin with. Ratings agencies could not predict the value of them. This is why so many people lost their retirement which was largely based on these securities.
Worst of all, the federal government encouraged the purchasing of these securities without knowing the underlying risk involved. The web of risk was worldwide, not just in the United States. Major institutions like AIG, Citi, Chase, Bear Sterns, etc. held many of these risky CDO's and when they failed everything that depended on them failed (ALOT!).
Generally speaking, borrowing and lending also increased dramatically in the past few years. Despite what MANY people (noneconomists) think, inflation and the money supply put into circulation by the Fed are not really related to the whole situation at all.
Best,
Tyler W.
www.ArmchairEconomics.com
by mardankhan1 14 years ago
what is the reason of economic recession in the world today
by Arvind Babajee 7 years ago
What is meant by Investment banking?
by pisean282311 13 years ago
God didn't create the universe -- it was actually a result of the inevitable laws of physics, British physicist Prof Stephen Hawking has concluded.In his latest book, The Grand Design, Hawking said: "Because there is a law such as gravity, the Universe can and will create itself from nothing....
by Mrs Lawretta White 14 years ago
How long do you think this would last.I Can't take it any more. It is invading my job. it is turning the country up, side and down.
by Gary Anderson 13 years ago
Yahoo censors their message board, letting mindless comments through and stopping comments that expose the banksters. I had a hard time getting through stating that the Tea Party should now realize that the banksters are extorting the politicians with threats about the demise of the 30 year...
by erickazoso 14 years ago
I'm curious what others think, in my opinion, the current recession we're in is simply the fault of the people that wanted a house and either couldn't afford their loans or didn't educate themselves properly on the loan they were getting into.
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