Causes of economic recession
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Links: Causes of economic recession
- Economic depression, five likely causes
This article talks about the various signs that were seen in 2005 that indicated that the United States economy was heading towards a recession. The article also lists five things that could cause a recession, whether together or separately. - Untangling the Causes of Recession
This article talks about how there is no exact cause for a recession, but there are numerous theories that economists have that indicate we are going to go into a recession. The article talks about the various theories that are most common. - What is a Recession?
This website provides you with numerous answers to the most frequently asked questions that you will have regarding recessions. The article also provides you with numerous links that you can follow to learn even more on the various subjects. - How recessions affect various job industries: Feature Article
How recessions affect various job industries: Feature Article talks about the various affects that recession may have on various job industries.
One thing that every economist believes is that recessions are something that cannot be avoided. The reason for this is that in a healthy economy you are going to have periods of high growth, slow growth and no growth. In fact in order for the economy to be healthy there needs to be some contracting and expanding. But in order for the economy to be considered in a recession the contracting period has to last for at least two consecutive quarters of a year or more simply put 6 months in a row. But the most common question that nobody can seem to answer very well is what is going to cause the next recession. In fact even fifty years after the great Depression, a really bad recession, and the answers to what causes an economic downturn or a recession is still a huge mystery.
Even though the exact causes of an economic recession are still a mystery there are numerous theories that have been put forth as to what causes an economic recession. But probably the most common thought on what causes a recession is that they are caused by events that have an economy-wide impact. Some examples of these events would be: increase in interest rates or a decline in consumer confidence.
In fact the general consensus is that a recession is primarily caused by the actions taken to control the money supply in the economy. So in the United States many economists believe that it is because of the Federal Reserve that we go into a recession. The reason for this is that in the United States it is the Federal Reserves responsibility to maintain an ideal balance between money supply, interest rates and inflation. And if the Federal Reserve loses balance in this equation the ending result is that the economy spirals out of control. In fact we have actually seen this happen recently. In 2007 the Federal Reserve monetary policy of injecting huge amounts of money supply into the money market kept the interest rates down but inflation actually continued to rise. And it was this combined with how easy it was to borrow money that caused our economy to spiral out of control to where we now sit in 2008. Most economists believe that we are currently heading towards a recession, not to mention that quite a few tend to think we are already there.
Causes of economic recession links
- The Mystery of Economic Recessions
This is an older article. It gives details about what a recession is and what some of the causes might be for an economic recession. The article also talks about the indicators that economists look for to indicate if we are headed towards a recession - The Causes of Recessions and Recoveries
This article talks about the various theories about what causes a recession, but mainly focuses on the fact that the Federal Reserve Board plays the largest part in our money, which means they are larger responsible for recessions and their recoverie
But something else that you want to keep in mind when it comes to the Federal Reserve Board causing a recession because of their responsibility with the money in the United States, it is also because of the actions of the Federal Reserve Board that we come out of or recover from a recession. Many people tend to blame the current President of the United States for any recession that our nation faces, and they also tend to give the current President the credit for getting us out of the recession. But what these people do not realize is that the President actually has hardly any control or influence over the economy for the short term. What they do has a gradual and long term effect on our current economy.
Another theory about what causes an economic recession is that they are caused by events that hurt particular firms or industries rather than events that impact the entire economy. The reason that some economists support this theory is because of how a recession seems to affect some industries badly, while other industries seem to thrive during these hard times. The economists believe that this happens because either a major innovation or a change in the price of a key item can adversely affect some firms. And when they are adversely affected they tend to lay off workers and reduce their production, which slows down that industry even further because they demand is greatly reduced. But at the same time there are other industries that are going through a major hiring phase and are actively looking to hire new workers, so it seems they are being helped by the recession activity. But what happens is that the people who were laid off can't find work right away because sometimes it takes time to find new employment so while they are waiting for that new job to come in there is a period of reallocation, moving workers from one job to another, which can cause a recession until everything is figured out.
Here are some other popular theories about what causes a recession.
- Some people believe that each recession has a unique cause, while others think that recessions usually only have a single cause.
- Example of a single cause bad investments by businesses
- Recessions and depressions, like that of the Great Depression, are caused by stock market crashes
- Factors that stunt short term growth in the economy, such as a sharp increase in oil prices or even going to war
- Globalization has changed the nature of the business cycle.
But regardless of which theory you believe there is no definite answer to what causes a recession. But in most cases there is ample proof that a recession is caused by numerous factors, meaning that various events took place and the end result was a recession. In fact a great example of the numerous factor theories is the recession that took place after the dramatic increase in oil prices in the 1970's. The reason that this set off a recession is that the prices set off an economy-wide decline in the demand for oil because of the fact that real income was reduced because of the higher costs of oil imports. Not to mention that tighter monetary policy dampened the inflationary pressures which followed the price increases. It was all of these factors that slowed the overall demand, which in turn resulted in a recession.
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Causes of economic recession related link
- The History Of Economic Recession in America
This website provides you with brief answers on two questions based on recessions. But the website also provides you with numerous resources that you can use to gather even more information on the recessions in America. - The History of Economic Recession
This website looks at the United States past recessions to try and determine the causes of the various recessions. But the website also takes a look at what is currently going on in 2008 for the United States economy. - Recession Proof Your Business in 90 Days or Less
This website is a business that claims to give you secrets that they have discovered on what you can do to keep your business up and running even during times when people are not spending money or during a recession. - Causes of Recession - Economics Help
This article talks about the various factors that can cause a recession, but the article also gives you various graphs that you can use to help understand how a recession works.
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Here are five negative items that could cause an economic recession or even worse a depression.
- Dollar collapse - there is a growing concern for the United States ability to attract foreign capital to finance both private and public investments. The reason for this is that the effect of high budget deficit subtracts from domestic savings, which means investing in general. Not to mention that the huge trade deficit also adds to financing needs. Something else to keep in mind with the dollar collapse is that the dependence on foreign financing is actually reducing the confidence in the United States economy. In fact between the years of 1985 to 1987 the United States dollar fell 49% against major currencies, Treasury bonds increased 2% and stock prices fell 30%. But in general a falling dollar would greatly affect the United States corporate bonds and 50% of those bonds are actually held by foreign investors.
- Oil rise - if the price of crude oil were to rise that would be harmful to the economy because of the fact that other prices would rise as well. Crude oil actually affects a lot more industries than just gasoline because of the fact that you need to have gas to run most machinery, but crude oil is also used in making other products such as asphalt. But if these prices were to rise it would actually slow consumer demand. And because of the slowing consumer demand it would undermine business and consumer confidence.
- Inflation - this can happen if both the dollar starts to fall and oil prices start to rise. The reason that this happens and is connected to oil prices and the falling dollar is that these factors make it to where consumer goods are more expensive, producers have to increase the prices of their products to make up for the increase in oil prices and to make the same profit that they were making before the dollar fell. But if the United States was dealing with inflation what you need to know is that China would then revaluate their currency at a higher rate, dollar value decreases yen increases in value, which would make the inflation even worse. But something else with inflation is that high inflation makes existing bonds unattractive, so new ones have to be offered, but the new ones are going to be offered at a higher rate.
- Housing bubble - if the interest rates on mortgages raised by 2% this could actually stop people from buying houses, which would in turn bust the housing bubble. But on the other hand if the prices of houses dropped or deflating prices, this would deflate household wealth, meaning people would have less equity in their homes.
- Global economy - this is where you are going to need to look at other economies other than your own to see if they are showing signs of a recession because in some cases other countries recessions can greatly impact the other countries depending on how much they rely on imports. A great example of this is that Euro is weighed done by currency appreciation, and both Europe and Japan are experiencing a slowdown of economic growth. Not to mention the fact that increasing Arab violence can erode business and consumer confidence.
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First, regardless of the technical description of recession versus depression, this is a depression. Whether a hurrican is a class 3 or 5, when it does major damage, it doesn't matter to the victims how it was classified.
The real issues dictating the economic factors that you mention is more important.
The fact that investors could skyrocket the price of oil beyond all known business practice fundamentals is the real issue to explore. It was a deviant from prudent business practices that was the root cause of the dot com, housing, credit and financial crises. That was also the real issue.
Have a storym brainy day
I thought it was understood that the housing market with all of those creative loans when there were no money available was one of the causes. Also spending 10 billion dollars a month in Iraq could easily add to the woes of recession.
Yeah, combination of inflation, over-spending, and consumer debt started a chain reaction.
Hi Stormy great post, I like posts like this that are more informative and educational.
I kind of like recessions in a peverse way it forces a change in the status quo. Effectively encouraging both individuals and companies to look at new ways of doing things more efficiently and effectively. Or even as you say, recessions provide the incentive for people to re-locate from one geography or industry sector, kind of validating some of the basic economic theories.
It may be disruptive and emotionally draining at the time but change is ultimately inevitable, you either fight it or make the most of it.
Thanks for all the information I'm doing an informative speech on the recession in my public speaking class and this was very helpful thanks again!
An economic recession is a period of pullback after normal growth, the 90's brought innovation technology and wealth, a recession was sure to follow. it almost mimics my theory on global warming that in fact that is a natural process as well that brings change.
In my opnion recission is an opportunity to comeout of job bar. Thanks for the info.
soo professional
i think recession is caused because of irresponsibility of the countries central bank like federal reserve for america , bank of england for england ,reserve bank of india. etc so if these central bnak fails to make a balance n stabilise the money supply, inflation rate, rate of intrest, economic stability,employment rate etc then the recession will be caused by these factor but we need to understand wat recession will bring in our economy is that it will absorb the peoples purchasing power and it will reduce the peoples confidence level morever the recessioin will bring an unemployment in the economy which is caused by the lack of sufficient demand for the output of the industry as i mentioned above these insufficient demand is caused by the low purchasing power of peoples n people will resort to saving instead of spending too much and most importantly the recession will bring the cases of lay off n retrenchment etc so thats why the countries central bank need to clearly look into these serious matter which can collapse the countries economy as recession will affect the rich people for the short term but in a long term the common people will be adversely affected . thanks for these website.
Great info. I would argue that the main causes included the increase in delinquency rates of subprime adjustable rate mortgages, the increase in the sheer number of mortgages issued, and the web of collateralized debt obligations (CDO's) that the mortgages comprised.
Mortgages are securitized and sold in pieces which spreads the risk to those willing to take part. Thus a huge 'web of risk' was created. Securities made from the mortgages rely on the underlying subprime mortgages. So when the CDO's lost value, the securities lost value, and cash flow in the entire 'web' decreased dramatically, which is why many people lost their retirement savings.
This 'web' was not limited to the United States, it was worldwide. The CDO's were based on a portfolio of loans and were hard to value. The issuance of the CDO's increased dramatically between 2004 and 2007 and were held by huge corporations like AIG, Citi, Chase, Bear Sterns, etc. Borrowing and lending were higher and more widespread than ever before. The US federal government encouraged the purchase of subprime mortgages, and rating agencies miscalculated the value of the CDO's so there was alot of uncertainty. Since no one knew the risk involved, private institutions took on more risk in the economy. I don't believe inflation or the money supply are relevant at all to the recent economic downturn.
I recently started a blog about fundamental economic principles. It doesn't relate too much to these macro-level concepts but I'm planning to touch on them a bit in terms of government policy (and the failure thereof). My blog is at www.armchaireconomics.com
Best,
Tyler
thanks for the information, it helped me with an economic's assignment. Very nicly presented and organized :)
The word 'toxic' springs to mind when I read about this latest recession. Toxic loans, toxic mortgages etc, and the world is still paying the price, not just the US.
recession cannot avoided have to face
Economically speaking, recession is part of the ebb and flow of our life. I agree, ramaiah, that we do need to face it. In fact, facing it is the number one thing to do! Thank you for stopping by. Do you have any suggestions about stimulating our economy to resolve aspects of the recession?
When was this artcile written? I am referrencing it in a paper and need some more info for a proper citation.
I posted this article almost two years ago (Aug2008) and make sure to keep all of my articles relevant as time flows.
nice article and follow up comments.can anyone guide me about the available literature on impact of recent recession in the field of IT
Is this on the mainlands economy or on hawaiias economy? My 9th grade history class is doing a project on the mainlands and hawaiias economy.
Ms. Tanita, this is a more general approach to analyzing economics as pertaining to recessions. Many of the points made do cover both mainland (continental US) and Hawaii since they are regarding aspects of the US economy on a fundamental level.
Good article. Voted Up
A brilliant hub that I am sure many will benefit from.
I now look forward to reading more of your work.Useful/up for this one.
Take care
Eiddwen.
This article was written over 2 years ago, but still is evergreen in quality. The recession has affected the way we go about living our daily lives. Many have developed a more frugal lifestyle while others have continued their luxe lifestyle. One thing for sure...it has been a wake-up or reality check for all!
Stormy; Great hub. Did you ever consider the business cycle as the cause of recession? In the early 2000s, telecommunications was a hot industry that powered the economy through mergers and acquistions: World Comm., Global Crossing Lucent,Level 3 and hundreds of other companies, many which no longer exist and companies were expanding their fiber-optic networks and cable systems. Once the industry was satiated there was no more product buying and the industry collapsed. Isn't that what happens with an economy? We have cycles.
Another area of expansion is government spending and subsidies for new emerging technologies. Solar power has been highly subsidized in China, the rest of asia and Europe and as a result hundreds of companies and thousands of jobs have been created there. In the U.S. we are lagging way behind as our government struggles with its own finances.
Rise on products price sometime is not do to oil prices
but to speculators of market. Is easy for them to blame somebody else. Wen put high price to get richer. I can notice this wen I buy true internet a cheaper product than at a local store even with shipping and handling
thank you for this information.it was really useful for my research
thank you for this information.it was really useful for my research
stormy...hats off dude..much informative
Thanks for the information,it was really helpul,but I need 2 cite more references for my working biblography in my research paper.
Nice said lines u explained good
I believe that one of the causes of a recession is greedy profiteering companies who sell needs exploiting the situation that we have to buy. When they excessively inflate their prices they cause the consumers they are squeezing to cut their spending by creating dread and fear of their next bills which are expected to inflate even further.
Great Post. So simple to understand, very useful for a layman.
Great Post. So simple to understand, very useful for a layman.
Thanks for the informative hub. Adding to the housing debacle is the amount of foreclosed/bank owned properties in the market. Banks taking back ownership and then selling these properties, often for less than market value, proves to help slow an economic recovery.
BizzyMuse 3 years ago
Stormy Brain - your hub is both interesting and informative, as were the associated links and videos. Thank you for sharing!