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Causes of the Current Global Economic Recession

The credit crunch


The global fnancial crisis (GFC) or global economic crisis is commonly
believed to have begun in July 2007 with the credit crunch when a loss o!
confdence by "# investors in the value o! sub$%rime mortgages caused a
li&uidity crisis' This in turn resulted in the "# Federal (an) in*ecting a large
amount o! ca%ital into fnancial mar)ets' (y #e%tember 200+ the crisis had
worsened as stoc) mar)ets around the globe crashed and became highly
volatile' Consumer confdence hit roc) bottom as everyone tightened their
belts in !ear o! what could lie ahead'
The sub-prime crisis and housing bubble
The housing mar)et in the "nited #tates su,ered greatly as many home
owners who had ta)en out sub$%rime loans !ound they were unable to meet
their mortgage re%ayments' -s the value o! homes %lummeted the
borrowers !ound themselves with negative e&uity' .ith a large number o!
borrowers de!aulting on loans ban)s were !aced with a situation where the
re%ossessed house and land was worth less on today/s mar)et than the ban)
had loaned out originally' The ban)s had a li&uidity crisis on their hands and
giving and obtaining loans became increasingly di0cult as the !allout !rom
the sub$%rime lending bubble burst' This is commonly re!erred to as the
credit crunch'
-lthough the housing colla%se in the "nited #tates is commonly re!erred to
as the trigger !or the global fnancial crisis some e1%erts who have
e1amined the events over the %ast !ew years and indeed even %oliticians in
the "nited #tates may believe that the fnancial system was needed better
regulation to discourage unscru%ulous lending'
The global financial crisis enters a new phase
The colla%se o! 2ehman (rothers on #e%tember 34 200+ mar)ed the
beginning o! a new %hase in the global fnancial crisis' Governments around
the world struggled to rescue giant fnancial institutions as the !allout !rom
the housing and stoc) mar)et colla%se worsened' 5any fnancial institutions
continued to !ace serious li&uidity issues' The -ustralian government
announced the frst o! it/s stimulus %ac)ages aimed to *um%$start the slowing
economy'
The "'#' government %ro%osed a 6700 billion rescue %lan which
subse&uently !ailed to %ass because some members o! "# Congress ob*ected
to the use o! such a massive amount o! ta1%ayer money being s%ent to bail
out .all #treet investment ban)ers who some %eo%le may have believed
could be one o! the causes o! the global fnancial crisis'
(y #e%tember and 7ctober o! 200+ %eo%le began investing heavily in gold
bonds and "# dollar or 8uro currency as it was seen as a sa!er alternative to
the ailing housing or stoc) mar)et'
9n January o! 200: "# ;resident 7bama %ro%osed !ederal s%ending o! around
63 trillion in an attem%t to im%rove the state o! the fnancial crisis'
Political instability related to the economic crisis
7n February 2< 200: an 8conomic 9ntelligence (riefng was added to
the daily intelligence briefngs %re%ared !or the ;resident o! the "nited
#tates' This addition re=ects the assessment o! "'#' intelligence agencies
that the global fnancial crisis %resents a serious threat to international
stability'
Business Week stated in 5arch 200: that global %olitical instability is rising
!ast due to the global fnancial crisis and is creating new challenges that
need managing' The -ssociated ;ress re%orted in 5arch 200: that> "nited
#tates ?@irector o! Aational 9ntelligence @ennis (lair has said the economic
wea)ness could lead to %olitical instability in many develo%ing nations'? 8ven
some develo%ed countries are seeing %olitical instability' A;B re%orts that
@avid Gordon a !ormer intelligence o0cer who now leads research at
the 8urasia Grou% said> ?5any i! not most o! the big countries out there
have room to accommodate economic downturns without having large$scale
%olitical instability i! weCre in a recession o! normal length' 9! youCre in a much
longer$run downturn then all bets are o,'?
Globally mass %rotest movements have arisen in many countries as a
res%onse to the economic crisis' -dditionally in some countries riots and
even o%en revolts have occurred in relation to the economic crisis'
9n January 200: the government leaders o! 9celand were !orced to call
elections two years early a!ter the %eo%le o! 9celand staged mass %rotests
and clashed with the %olice due to the governmentCs handling o! the
economy' Dundreds o! thousands %rotested in France against ;resident
#ar)oEyCs economic %olicies' ;rom%ted by the fnancial crisis in 2atvia the
o%%osition and trade unions there organiEed a rally against the cabinet o!
%remier 9vars Godmanis' The rally gathered some 30F20 thousand %eo%le' 9n
the evening the rally turned into a Biot' The crowd moved to the building o!
the %arliament and attem%ted to !orce their way into it but were re%elled by
the stateCs %olice' 9n late February many Gree)s too) %art in a massive
general stri)e because o! the economic situation and they shut down
schools air%orts and many other services in Greece' ;olice and %rotesters
clashed in 2ithuania where %eo%le %rotesting the economic conditions were
shot with rubber bullets' 9n addition to various levels o! unrest in 8uro%e
-sian countries have also seen various degrees o! %rotest' Communists and
others rallied in 5oscow to %rotest the Bussian governmentCs economic
%lans' ;rotests have also occurred in China as demands !rom the west !or
e1%orts have been dramatically reduced and unem%loyment has
increased' (eyond these initial %rotests the %rotest movement has grown
and continued in 2033' 9n late 2033 the 7ccu%y .all #treet %rotest too)
%lace in the "nited #tates s%awning several o,shoots that came to be
)nown as the 7ccu%y movement'
9n 2032 the economic di0culties in #%ain have caused su%%ort !or secession
movements to increase' 9n Catalonia su%%ort !or the secession
movement e1ceeded G0H u% !rom 2GH in 2030' 7n #e%tember 33 a %ro$
inde%endence march which in the %ast has never drawn more than G0000
%eo%le %ulled in a crowd estimated by city %olice at 3'G million