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reason of recession?

  1. profile image46
    yuwarajposted 8 years ago

    reason of recession?

  2. profile image0
    Phoebe Pikeposted 8 years ago

    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...

  3. profile image0
    Dog On A Missionposted 8 years ago

    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

  4. TylerWill profile image54
    TylerWillposted 8 years ago

    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.

    Tyler W.