The Great Recession of 2008 Essay Example

The Great Recession of 2008 Essay A recession is full-proof sign of declined activity within the economic environment. Many economists generally define the attributes of a recession are two consecutive quarters with declining GDP. Many factors contribute to an economys fall into a recession, but the major cause argued is inflation. As individuals or even businesses try to cut costs and spending this causes GDP to decline, unemployment rate can rise due to less spending which can be one of the combined factors when an economy falls into a recession. Inflation is the general rise in prices of goods and services over a period of time. Inflation can happen for reasons such as higher energy and production costs and that includes governmental debt. Great Recession of 2008 Introduction The U. S. 2008 recession was felt in nearly every country’s economy worldwide. As inflation increased and various other factors began to fail the United States economic system a global recession began to take place. The U. S. began to face hardships such as high unemployment, bank failure, rising energy costs, housing and auto bubbles that ruptured into a global crisis. Although, much of the media focus was initially known as the so-called, â€Å"super power† U. S. , now as more attention is being shifted to Japan the world’s number two economy and other nations financial markets. The global downturn had the potential to affect exports which the Sweden market experienced because of their high percentage of contributed over half to their GDP. However, during the next few pages we will elaborate further on the how the U. S. 2008 recession is dissimilar and parallel with that of Japan and Sweden’s. Also, listed will be those economic actions implemented that were effective or unsuccessful in fighting the recession. Similarities of U. We will write a custom essay sample on The Great Recession of 2008 specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on The Great Recession of 2008 specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on The Great Recession of 2008 specifically for you FOR ONLY $16.38 $13.9/page Hire Writer S. Recession and Other Nations Japan and Sweden both had similar attributes and causes of the economic global downturn with those of the United States. †¢Japan is the second largest economy in the world. However, experiencing two straight quarters of declining GDP Japan followed the U. S. into a massive recession. As the U. S. began to experience low consumer confidence and demand, Japan’s corporate powerhouses such as Toyota, Honda, and even Sony profits took a dive. The nation’s export driven economy watched overall global demand slow down especially since the U. S. s one of Japan’s biggest customers for exporting goods. According to CNN Money, Stocks in Japan and the United States have been equally hard hit, falling 42% and 33% respectively (CNN Money, 2010). Both Japan and the U. S. dollar weakness helped to hinder economic recovery. Slow growth in Japanese bank loans had added to the similarities as the U. S. did. â€Å"Falling home and stock prices re duced consumer wealth. Feeling poorer, consumers were less willing to buy goods and services at the prevailing price level. This aggregate demand led to a drop in equilibrium GDP† (Schiller, p. 167). As the known business cycle of alternating periods of economic growth and contraction, the United States financial sector affected the financial systems through its exposure to foreign financial assets with high level risks. Thus, the downward slope of the aggregate demand curve is reinforced by changes in imports and exports (Schiller, 2010). Great Recession of 2008 †¢Sweden has more similarities with the U. S. recession than that of Japan. Both the United States and Sweden are mixed economies, and both experienced the housing crisis with helped lead to one of the worst recessions on record that has been felt globally. In Sweden the residential price falls, and a significant decline in property sales which resulted in overall slowdown of construction activity. The 2008 great recession is global and Sweden was not immune. As consumers began to spend less, other people and businesses aren’t earning any money, which eventually led to high unemployment rates such as that of the U. S. this began to spread even further. According to Sweden real estate, exports accounted for 54% of GDP, with 60% of exports and 70% of imports going to the EU (2010). However, Sweden and the United States are also significant trading partners, with the U. S. spending less and losing more jobs. As demand fell so did Sweden’s export contribution to its GDP, thus spiraling Sweden into a recession. Key interest rates began to fall in Sweden same as in the United States due to the global financial meltdown. â€Å"As the demand for loans diminish, interest rates tend to decline as well† (Schiller, 2010). Dissimilarities of U. S. Recession and Other Nations Although, Japan and Sweden had few similarities with those of the United States during the Great Recession, there were dissimilarities that displayed the U. S. failure to achieve full employment GDP and other factors. Japan’s unemployment rate of about 4% opposed to the U. S. unemployment rate of close to 10%. Even the financial debt to GDP ration is an advantage, and debt in the private sector has not increased unlike the U. S. and European countries, (Time, 2009). In addition, since Japan is a huge exporter and with the U. S. demand going downward, the international balances and growth declined especially as the dollar value dropped and the yen surged. †¢Unlike the United States, Sweden took a double hit as weak international demand for its products and interest rates at home – GDP contracted by 0. % down, according to Sweden Real Estate (2010). Sweden’s home prices keep rising while the U. S. home prices had plummeted. As the United States continued to lose jobs monthly, Sweden kept the unemployed working thus, keeping them employed as jobs were affected globally. Internal market forces may have kept unemployment rising however, instability keep consumer confidence at bay. Great Recession of 2008 Government Economic Actions from Other Nations Both Japan and Sweden acknowledged the global economic situation that their country was now experiencing. With this acknowledge came much action to help aid in multiple shifts such as a rightward shift of the aggregated demand curve which can cause a recovery, with real GDP and employment increasing (Schiller, 2010) which was much needed not only in Japan and Sweden, but worldwide. †¢Japan did a lot in terms of capital injection, recapitalization, public investment, and tax cuts. However, many agreed that many of the Japanese tactics helped to stabilize the economy, but these effects did not help recover the economy as originally first thought. Japan announced an economic stimulus package to help curb the recession which included the following actions: expanded credits for small business and a cash payout to every household to spur spending. Also tax breaks for workers affected by the recession and home buyers. This also injected funds into the markets and support for mid-sized businesses (Time, 2009). My favorite incentives include low interest mortgages for new home buyers and incentives for â€Å"green† technologies. †¢Sweden was proactive in its approach to minimize and reduce the recession’s impact on its citizens and economy. Sweden kept it’s unemployment from soaring by cutting unemployment benefits and lowering taxes on low-income workers. However, this was not enough as the Swedish government presented a crisis package. One of the main actions of Sweden was being one of the first banks in Europe to make a large cut in its official bank rate. Moving further, the Swedish government provided a reduced in employment tax by half for the hiring of people who are long-term unemployed, the maintenance of railways and roads, construction programs, trainee programs, and student grants for individuals over the age of 25 years (Time 2009). Japan and Sweden received criticism for the stimulus/crisis packages to help their perspective nations to recover. Citing that packages were either not sufficient or they were short-term fixes. Also, critics were angry of the excessive spending which in short added to the rising debt of unemployment benefits, construction packages, and interest rates. Ultimately, this was and still is a global recession. There has to be a long- run self-adjustment formulated to not only entice investors, but provide confidence in the consumer again. Since the United States provides 70% in spending to the GDP while countries like Japan and Sweden provide the U. S. imports of various goods and services, this provides a healthy, global business cycle that incorporate growth in each contribution sector to every countries GDP. Great Recession of 2008 United States Economic Actions As the United States entered a new phase with a new president, a recession loomed amongst the nation. This recession was not like any other recession within the past two decades, but one that is compared to one such as the Great Depression that lasted a decade. Although the United States is known to be the biggest economy worldwide, it is not immune to global catastrophe. Many nations rely upon the U. S. for exports and imports and investors take notice. Although, the U. S. is a strong nation, a push for a faster economic recovery was addressed. The United States economic stimulus package was a $787 billion sanction which was the biggest bill since the great depression. The package included the following: †¢Energy efficiency and renewable energy projects †¢Science and technology to improve broadband internet †¢Infrastructure for highways, bridges and clean water Education and healthcare †¢Interest rate of 0% `The U. S. stimulus package was parallel to that of Japan and Sweden with the â€Å"green† initiative to save and preserve energy, also the infrastructure idea to create jobs and keep the citizens minds at bay and become more confident in the system. We must remember that economic stimulus is another means by which a government can seek to boost its economy, either in the short term, by encouraging consumers or companies to consume goods, or in the longer term, by encouraging the growth of businesses and the creation of jobs through investments in infrastructure and research. Education was a big change with both Sweden and the United States (Teslik, 2009). It certainly depends on the individual and critics to assume what was successful and what wasn’t. For example, a homeowner that receives tax credit for new more energy efficient appliances may think that the package has worked in his/her favor. Or even the person that purchases a new vehicle during the cash for clunkers deal, this may be a great experience and the stimulus is working for him/her. However, there are always the negative experiences when a college graduate wants and is eager to enter the work force, but is discouraged when him/her have been searching for over a year. Nevertheless, there is part of the stimulus that had to be altered from my experience. President Bush gave every household a lump sum depending on your household size and dependants. Many of the individuals either saved the money or spent on necessities. However, later as President Obama acknowledged did not work, he later revised and gave the tax break it increments on your payroll or unemployment check. Great Recession of 2008 Conclusion The U. S. 2008 recession was like no other, economists mention a stronger comparison with the 2008 recession to that of the great depression. The 2008 recession was and still is in fact, one of the worst recessions on record. Many individuals don’t realize the impact the U. S. has on other nations. In my opinion, if the U. S. does not recover the surrounding the neighboring nations that have a relationship with the United States will falter and potentially end up bankrupt. This new millennium does not compare to the 1920’s and 30’s. This new day and age bring mass media coverage, global corporations, extensive investing, trade, external shocks, policy levers, and international balances. There is a difference. There will always be critics to voice what went wrong and what should have been done prior to a recession occurring. Nonetheless, a recession is needed for growth and creative innovation for a country to continue to develop. The determinants and outcomes of the economy are important and is a direct effect of the nation’s GDP. The uses of monetary and fiscal policies are important when trying to shift the AD curve and have the nation recover from a recession. Although spending exists with a deficit that continues to grow, the nation will prevail as it had before. The United States have learned much from many nations such as Japan with the lost decade and Sweden’s double dipping economy. The great recession of 2008 has taught many businesses, citizens, and global governments many lessons and through these lessons is preparation for a new tenure.