Current Crisis Impacted Financial Market Real Economy Everyday Lives Essay
- Length: 14 pages
- Sources: 25
- Subject: Economics
- Type: Essay
- Paper: #33873594
Excerpt from Essay :
Effect of the recession on upon financial market, the real economy and over everyday lives
Recession is defined as the economic slowdown or decline characterized by slowing down of trade, a magnitude decline in the GDP, and a decrease in employment usually lasting between 6 months to a year. This was the situation in the U.S.A. The hardest times being from 2008 through 2009 and the early months of 2010. America is still recovering from the effects of the recession that the country experienced from 2007 to 2009.
The slow down in economy triggered a massive job loss and unemployment rates that shot through the roof, the prices went up and a great deal of uncertainty rippled through the country. This situation has now seen a reverse trend albeit at a slower rate than was expected by many. The unemployment rate in November 2011 fell by 0.4% to 8.6% unemployment as the nonfarm payroll employment climbed by 120,000.
This was the situation in the U.S.A. The hardest times being from 2008 through 2009 and the early months of 2010. All this is however now changing since by 2009 the GDP was at -6.8% and now it has appreciated to 2.8%. This can be located as a positive sign though there is still much to be covered in terms of restoring the country to the previous economic situation through the assistance of the Federal Reserve and the Congress.
The areas that have seen significant employment rise are retail trade, hospitality, leisure, health care as well as professional and business services (U.S. Department of Labor, 2011). This was accompanied by an inflation rate of 3.5% as at October 2011, still slightly higher than the average American inflation rate of 3.38%. This is on the back of increased indexes for food and energy which was also the reason behind the seasonally adjusted all items increase (Trading Economics, 2011).
The currently reported GDP growth rate on the annual basis after the adjustments for the inflation is pegged at 2.8% as at 2010 (Index Mundi, 2011) up from -2.6% in 2009. The U.S.A. budget deficit in 2010 reached nearly 9% with the total revenues that the government collected from taxes and other sources remained low as a percentage of the GDP as compared to that of any other developed country.
From the figures hitherto, it is true that though the place may be slower than expected by many, there is recovery taking place. The U.S. Federal Reserve System has strived to create an atmosphere that facilitates the sustenance of low interest rates by the banks so as to encourage the borrowing from banks to continue as was before, this is followed by discouraging short-term lending rates as this could dampen borrowing and resulting in a slowed down expansion.
Effects of the recession in America
The effects and lessons that came as a result of the recession were very similar to those experienced by America during the great depression. This was a time in history that saw a down turn in the economy of the world with places like the U.S.A. And Europe being significantly affected. The stock markets went to an all time low and majority of the banks had to close in line with the heavy economic burden that was experienced then. More people withdrew their money from the banks with fears that the bank could go under with their money hence the wider spread of the bank closures.
During the depression people were left with no options to satisfy their basic needs and at the same time providing people with options to adopt in order to survive through the tough economic times as indicated by Browder, Laura, (1998). These tough economic options drove majority of the Americas to learn how to share the few resources and supplies that were among them, a fact that bordered on communism.
These were hard times when there was little in terms of trade that the Americans could constructively engage in and this idleness was compounded by the loss of jobs and the bad weather that came with the economic depression. This left many Americans with only one option, that of writing in order to express their feelings and frustrations at the depression. The writers that inclined towards the leftist ideologies were more appealing to many Americans due to the general dissatisfaction with the goings on.
There are several similarities that were experienced by the Americans in the recent recession and by Americans in the 1930s great depression. These effects that were experienced during the great depression cut across the stock market and the banking system, the general economy as well as the daily livelihoods of the Americans, in a manner similar to the recession as discussed below.
Recession and the financial Markets
Amitabh Shukia (2009) notes that the decrease in the stock market meant that investments suffered a great deal and especially the industrial production as the investors in such sectors avoided investing in companies that might make losses in the recession period. It is worth noting that the bigger companies were able to withstand these effects but the smaller companies actually closed shop and some suffered a great deal.
The banks however did not experience closures are was in the depression since the Federal Deposit Insurance Corporation that was instituted after the lessons learnt from the great depression gave investors in the banking system and the depositors the confidence to stay put. Doug Gentry (2011) indicates that part of the reason why people are confident in depositing their money with the banks is because of the faith and confidence that they have in them. This confidence was inculcated into people with the creation of the Federal Deposit Insurance Corporation (FDIC) in 1933 after the great recession when people withdrew all their money from banks and refused to re-deposit it for fear, insecurity and lack of trust in the banking system.
The FDIC is an insurance that covers the banks, such that incase a bank goes under then all depositors will be refunded their money up to $250,000 each. This is one fundamental reason why during the recession people had confidence in the banks and would not mind leaving their money with the banks. since banks cannot be easily rendered insolvent due to the insurance by FDIC, depositors have the confidence to let their deposits accrue interests with maximum safety rather than retrieve their money from banks and expose it to insecurity. With this confidence the clients to banks have some confidence that the banks are not going to be wound up any soon and work on presumptions that banks are here for the long run.
Banks do not let customers know when they are in crisis which is usually in bid not betray the confidence customers have in them. Banks do the best they can in bid to appear financially stable in the sight of the public. This helps them to win confidence from people and thus helps explain why customers do not rush to retrieve their funds even in instances that banks might be financially constrained or even in financial hardships like the recession recently experienced.
The recession also brought with it disguised blessings to people who intended to invest for the long run and the future. Since the prices of shares in the stock market drastically fell, many people took this chance to buy the shares with the focus that it could appreciate in the coming years.
Recession and economy
There was a general effect on the international brands and the local brands during the recession. A lot of businesses were affected since there was absolute change in the lifestyle of most Americans. For instance the air travel companies were greatly affected since many people hitherto were accustomed to travelling during the holidays for leisure and visiting relatives. However this changed in 2009 when the recession hit hard and many opted to abandon their social lifestyle and deal with the basics only hence affecting the airline's operations as noted by Sky News (2009). This was the same trend with other kinds of business especially those that were more bent towards leisure and secondary goods. The Americans opted to concentrate on the primary goods and as a result affected the economy of the country.
Recession also resulted in the decrease in the consumer spending hence a drastic reduction in the sales of various enterprises. This is an effect that those businesses dealing in non-essential goods feel most as the consumers concentrate on the essential goods alone as the availability of money does not allow them to go beyond the essentials into luxury spending. With this decrease in consumption, many investors ad even the foreign investors will opt to keep out of the regions mostly hit by the recession trends. The other scenario that emanated from the recession in line with the consumer spending is that even if the seller might be able to maintain the sales, there is bound to be a…