Causes of current recession Essay Example for Free

Causes of current recession Essay The America’s economy has been booming, all along before the recession, many questioned has been raised by the experts some even suggesting that, free marketplace as well as free ventures might take the effects wherever the law had unfavourable implications. The recession was first visualized when, the sub-leading mortgagees went ahead to evade on their payments since either they had no enough cash most likely for the reason that the interest rates went up or else they were at a risk of begin given a loan to start business with otherwise they choose a appalling loan whose rate was not fixed (Rigby 3). Each economist suppose that recessions are economic issues that cannot be evaded, they can only be managed to control there level of occurrences (Baveja et al 1). This is because, there are periods of high growth in a healthy economy as well as slow growth and some times no growth. The truth is that, some contracting and expanding has to occur for the economy to be healthy. However, for an economy to be considered in a recession the period for contracting is required to last for at least for two quarters consecutively in a year or a half a year. It is difficult for many people to predict the possibility of occurrence of the next recession. The exact causes of economic recession tend to be a mystery to many people but there are a number of mysteries that give information concerning the causes of economic recession. Some people tend to think that recession is brought by events that are deemed to have a great economic impact in the economy. Some of these events would involve the increase in interest rates or a decline in the confidence of a consumer.   Generally, recession is primarily seen to occur due to the actions that are taken when controlling the supply of money in the economy (Stephen et al 3). The above believe comes with different views from different people, for example, many economists in the United States have believed that economic recession is caused by Federal Reserve. This is because; it is the responsibility of the Federal Reserve to take charge in maintaining an ideal balance between money supply, interest rates and inflation in the United States. Rigby (3) advocates that failure of the Federal Reserve to maintain balance in the above areas it will result to the economy losing control. This is a case that has happened recently in the year 2007. During this year, the Federal Reserve Monetary policy that was used to bring in large amounts of money supply into the market, kept the interest rates below the expected rates but the rising of inflation continued to rise drastically. This problem came together with easy methods of borrowing money that could lead to the crisis of the economy until last year. Most of the economists have believed that America is already in recession and others that the country is heading towards a recession. However, people believe that each recession has its own cause while others believe that recession has only based on one ground. For example, bad investments by business are a single cause of recession in the country. In addition, recessions and depressions such as that of the great Depression are said to be caused by stock market crashes. A sharp increase in oil prices or even going to war are factors that inhibit short term growth in the economy (Harmesh et al 16). It is evident that globalization has changed the nature of business cycle. However, regardless of which theory one would believe in there is no definite answers to the causes of a recession. There is little evidence that recession is brought up by a number of factors. This means that there are many events that take place that result to recession. An example for numerous factor theories is the recession that had taken place after the prices of oil increased dramatically in the 1970’s (Stephen et al 3). This helps in setting off a recession since the prices set off a big economy decline in oil demand. This was because real income had been reduced due to higher costs of the imports of oil. In addition, there was more tight monetary policy that dampened the inflationary pressures which came after the increase of prices. These factors brought down the overall demand that in turn led to a recession. Currently, in America, banks are scared of giving loans to customers. The reason for this is that, the banks are terrified that giving out loans will lead to loosing the money and defaulting if loans. There is the existence of credit crunch that has caused money to be real tight and this is making many banks such as the Lehman brothers to go bankrupt. Another bank known as Fannie Mae and Freddie Mac were bailout for the purpose of keeping it from standing bottom. This has led to the current loss of money by the stock market because of the major credit crunch that is making investors nervous that a major recession is on the way. A recession is considered to be the goods and services that are down from the previous two quarters or more (Baveja et al 1). The recession being experienced in America has to the number of taxpayers buying out all the dead mortgages to approximate 700 billion. This is a sign that the banks will start once more lending money freely to people. However, currently loans are still given out although at a much higher rate. According to Rigby (6) in order to make more money available and flow freely, central banks across the whole world are cutting the rates if giving loans. To add on this, the effect of crisis in many industries is great due to the consideration of banks as the major capitalist society. This leads to difficult to loan money since it becomes increasingly tight in the borrowing market. Hence less homes are bought as well as cars and even small businesses are affected in the sense that they cannot do payroll. Small businesses spend a lot of time in taking temporary small loans until they are paid for the product or service. In early 2000, there existed a deregulation that caught up greedy banks and the ways in which they were handling out credit and loans to people who cannot afford them hence leading to financial meltdown. The rise of inflation rates that creped very fast led to difficulties for people in paying back loans and credit hence creating a slow meltdown effect. America is considered to be the largest world’s economy and its economy has been seen to be weak and it’s drifting as a result of a collapse of the housing market. There is also the problem of sub prime mortgage turmoil, a severe credit crunch, high oil prices and the deep devaluation of the dollar (Baveja et al 1). Possible solutions in eradicating economic recession People can be disappointed in the fact that there is no cure for economic recession. However, some people argue that fiscal and monetary stimulus should shorten the downturn but patience is needed for it to happen. There is need for changing the legal framework governing the various aspects of economy. It is important for people in the country to be well versed with corporation and banking as well as economics to enhance education among people affected by the results of recession. Learning on the above areas makes people more educated, smart and qualified to deal with economic recession (Stephen et al 3). Recently during the Obama week, there was the introduction of the rescue gains team. In this team there are seven people known as the fixers who are in charge of rescuing the economy. In order to rescue, the teams takes into consideration various issues. During the tenth week of Obama administration, the treasury secretary Tim Geithner unveiled the next phase of the bank bailout (Baveja et al 1). A plan for overhauling regulation of the financial system was outlined by the government. The administration effort is determined to produce economic conditions that are stable. This has helped in improving the sentiment on Wall Street where stocks posted gains for the week. In Capitol Hill, the committees involved in the house and the senate largely supported the Obama plan for 2010 with positive caution. It has been a long debate in the American country to take issues concerning the solution to economic recession. The administration is also concerned with the prevention of future meltdowns through increasing the supervision of the financial markets and prevention of companies from growing too big posing the possibility of failing. The need for investing highly in health care, education and energy was also one of the long term agendas mentioned by the president for the purpose of fighting economic recession in the country The issue of drawing a budget proposal that cannot be separated from the broader themes of economic recovery and future growth was addressed. This budget is referred as laying foundation for a secure and lasting prosperity for economy. My opinion on the best way of dealing with economic recession There is need for changing the legal framework governing the various aspects of economy. It is important for people in the country to be well versed with corporation and banking as well as economics to enhance education among people affected by the results of recession. Learning on the above areas makes people more educated, smart and qualified to deal with economic recession (Harmesh et al 16). Work cited. Baveja Sign Sarabijr, Ellis Steve, Rigby K. Darrell, â€Å"Taking advantage in a down turn,† 2002, 1. â€Å"Havard management update,† leadership managing, 2001, 8-12. Hamermesh G. Richard, Dann B. Jeremy, â€Å"STT Aerospace,† 1998, 10-20. Stephen C. Michael, Pearce A. John, â€Å"strategies to prevent economic recessions from causing business failure†, 2006, 1-9. Rigby K. Darrell, â€Å"Moving upward in a down turn,† strategy and execution, 2001, 1-8.