Economic Credit Crisis Of 2008

We’ve all been hearing of an economic recession that has hit the United States in 2008, and which is now causing ripples of fear in Europe as well. The Euro Zone Growth Outlook for 2008 has decreased dramatically in the last few months. Why? What are some of the indicators that the current recession is serious? What are its possible causes?

In March of 2008, Bear Stearns, one among the biggest banks and brokerage firms on earth, had to accept an emergency loan from JP Morgan Chase and the Federal Reserve Bank of New York just to avoid going insolvent. The banking behemoth then had to actually merge with JP Morgan Chase a few days later, just to keep the market relatively stable in the face of the impending collapse of Bear Stearns. These harrowing events caused Alan Greenspan, former Chairman of the Federal Reserve, to predict that America was entering the worst financial crisis it experienced since the crisis that immediately followed World War II.

As if that weren’t enough, April of 2008 inaugurated a terrible airline crisis in the U.S. Five airlines went out of businesses in two weeks, and one filed for bankruptcy. Plus, The IMF, or International Monetary Fund, predicts instability in the world’s money markets. According to the IMF, the all major global financial institutions are under pressure to either start trading more conservatively, or potentially lose capital. Some economists predict that America’s gross domestic product might decrease by as much as 2.2%, an uncomfortably high number. Others say that the recession might lift by the summer of 2008, when the government’s Economic Stimulus Act starts showing results.

Analysts have pointed to multiple causes for this severe, potentially global recession. One indisputable factor is the price of oil, which is higher than it has ever been, going up to $110 on April 9. The high oil prices, alarmingly enough, are coupled with a dwindling supply of oil. The oil problem was indubitably a major cause of this April’s airline crisis. Because of this, some have claimed that environmental problems are responsible for the recession, but, in fact, it’s more complicated that that. The recession is the result of a complex interaction of factors, including the environmental factor.

For example, the prices of gold hit a record high as well. In March, gold sold for more than $1,000/ounce on the global market. This last is especially alarming in conjunction with the fact that the American dollar, by contrast, is getting weaker.

Moreover, in 2007, the United States experienced a subprime mortgage crisis caused by a downturn in the housing market. When the housing bubble in 2006 and 2007, lenders were injured by a high concentration of defaults on adjustable rate mortgages (many of which are considered “subprime” mortgages, as they have an interest rate well above the US Prime Rate). Financial markets went into turmoil because of this. Many investors took money out of equities and started to invest in commodities, causing a worldwide rise in the cost of food. Furthermore, on January 21, 2008, stock markets outside of America all experienced significant losses.

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