Causes of Economic Recession
The term recession or crisis happens to part of the obvious and normal cycle of the business. Allegations have it that it will sooner or later take its due course. A general discussion spell out the fact that recessions can be associated with the falling of prices that is referred to as deflation and this is owing to lack of demand of products. Considering the provisions by National Bureau of Economic Research (NBER), recession can be then referred to a significant decline that occurs in the economic activity, and it exists for more than a couple of months, and it is normally visible within the real gross domestic product (GDP), employment, real income, industrial production and finally the wholesale-retail sales.
Considering the late 2000s recession, which is commonly referred to as the Great Recession, is the existing economic problem and it was first apparent in the US in December 2007. Apparently the Great Recession seems to have gone to an extend of even impacting on the entire world's economy, and it has been witnessed that it normally seems to be detrimental to some countries as compared to some others. This was a recession that was recognized globally and it was actually characterized by some given systematic imbalances and then later sparked by the ensuing outbreak of the 2000s financial crisis.
The heated central debate pertaining to the origin of the recession has been connected with the given respective parts that is executed by the public monetary policy, notable in the U.S), and also by some given practices by the private financial institutions. On a particular day, October 15, 2008, Ellen Nakashima, Anthony Fayola and Jill Drew came up with quite a lengthy article in "The Washington Post" that was titled "What Went Wrong". In accordance to these three authors, former Federal Reserve Board Chairman" Alan Greenspan, the Treasury Secretary Robert Rubin and the SEC Chairman known as Arthur Levitt strongly were against any regulation belonging to the financial instruments referred to as the "derivatives'.
Still highlighting about the same, they the alleged that Greenspan in an active strategy sought to at least the office belonging to Commodity Futures Trading Commission, and this to be specifically through the leadership of Brooksley E. Born, a time when the commission sought to enhance initiation of regulation of derivatives. Finally it happened that the collapse of the particular kind of derivative, the "mortgage-backed security', that can be accountable for the economic crisis that ensued in 2008.
It has still been said that there exists a doubt as to whether the global recession was sue to the financial meltdown that prevalent in the U.S and ultimately spread out swiftly hence being evident in almost all parts of the world. It is quite interesting to note that it appears to have been an acceptable theory amongst many economists that the apparent recession in the U.S happened to a direct result as pertains to the sudden blasting of the house bubble, and even the same house bubble occurred as a result of creation of a rapid yet an unregulated subprime mortgages. At time when the role of "Chairman of the Federal Reserve' which is assumed by the Greenspan has had a wide discussion amongst experts, there also exists another argument that the given Green Span's actions considering the period between 2002 to 2004 got motivation by the desire that had cropped about taking the economy in the U.S out of the former recession in 200 that was due to the bursting of the dot-com bubble. The controversy had the main objective as being lowering of the Federal Funds rate at just 1% a period of more than a year of which according to the Austrian School of Economics, paved way for great amounts with regard to "easy' credit based cash that had to be injected into the financial system, hence creation of an unsustainable economic boom.
Some of the economists, particularly those who belong to the Austrian school and the ones deal with prediction of the of the recession, the likes of Steve Keen, have it that the final origin with regard to the great financial crisis that prevailed in the period between 2007-2010 can actually be traced long back to an exceedingly indebted US economy. The instant collapse of the real estate market that was witnessed in the year 2006 was the only close point that can be associated with the origin of this particular crisis. The rates of subprime mortgages that were large and default are not accountable especially when considering the severity of this particular crisis. Instead some other low quality mortgages that would act as accelerant to the given blow that went through the whole system related to finance. It is worth noting that the latter tended to have become fragile considering the various factors that happen to be some how weird to this troublesome crisis: assets transfer to the markets from the balance sheets, the ensuing creation of complex cum assets that were described as opaque, rating agencies' failure to adequately address the assets risks', and finally applying fair value accounting(Labaton, 2010).
Another cause may be said to be a cause of the recession is the Credit Crunch or rather the difficulty encountered in borrowing the money. Owing to the high mortgage defaults in the U.S, most of the banks have ended up loosing a lot of money. This has subsequently affected the financial institution negatively as they tend to have developed quite a peculiar attitude towards lending of money and sometimes they are reluctant. This has consequently led to the losing of money in the money market. Also it has led to the borrowing being a bit difficult and also quite expensive to arrange and this has led to lower installment and the consumer speeding. Still the rising oil, food and energy prices and can attributed to the recession. These have been the cause of an increase in the cost of production. Apparently it leads to the aggregate supply curve to shift towards the left, and the final effect is that it leaves lower discretionary income with regard to the average customer.
A 2011 poll revealed that bat around half or even more of the Americans tend to think that their country is still suffering the effects of recession or even depression, regardless of an official data that reveals a modest recovery. It had proved quite difficult to distinguish between the ambiguity between the two definitions of recession at least as somehow English currently never offers any alternative labels that can be differentiated.
In conclusion, it appears not quite apparent how deep recession which began in the year 2008 will impact on the performance of the economy in the coming two years. Considering this given recession is normally known as the worst and actually the deepest ever since the occurrence of the great depression, it has still been tied up with some other significant falls and particularly the oil prices. There two significant scenarios that reflected addition in oil prices that were hence developed, as quite a great deal of volatility tends to remain pertaining to the global future level of growth to the economy. Experts have it that given the particular existing economic situation, quite a deep global recession is bound to last for even about a year just before economic activity begins recovering in the U.S(Pimlott, 2009).