Global Economic Crisis Throughout the history of the U.S. and the world at large, financial crises and the resultant economic recessions have occurred unerringly recurrently. In fact, the phenomenon has become so common that some think of such crises as parts of economic systems of the major world powers. The most recent one is the 2008 financial crisis that brought about the world economic recession. The recession resulted in over 4.1 trillion dollars in losses, increased poverty, unemployment numbers climbing to over 10% in the U.S. and quite higher in major European economies, major banks collapsed and several stock markets crashed. In fact, American investors alone lost over forty percent of their savings value. Housing prices dropped sharply from the high recorded previously in 2006. The 2008 crisis also resulted in decline in manufacturing, reduction of world trade, decrease in consumer spending, and many negative effects. Because of the importance of finance to most of the major dimensions of globalization, matters such as trade, migration, human rights, ethnic conflicts, inequality, crime, disease, democracy and the environment are affected. Moreover, the latest financial crisis affected some nations more than others, thus creating power shifts among nations, particularly between the U.S. and China. The E.U (European Union) debated over the degree to which their governments should bail out banks and debated remedial measures needed in their financial systems. The political, economic, financial and social differences continue to be influenced to date, with issues such as the Greek debt crisis. In the U.S., citizens protested against financial inequality resulting in movements such as "occupy Wall Street" gaining popularity in the latter days of the financial crisis (Claessens & Kose, 2013).

The global impact of the 2008/2009 financial crisis shows the importance of having a comprehensive understanding of what brings about such crises, what are their effects and what can be done to prevent them or at least mitigate their effects. The latest crisis resulted in shifts in financial and economic policies, making experts delve into studies and researches to find the best responses as the effects of the crisis continue to be felt world over years after the phenomenon (Tcherneva, 2012; Arestis, Charles & Fontana, 2013).

About global economic crisis

The causes of economic crises are as complicated as the crises themselves and the people behind them. Since the early 17th century, there have been about 60 recorded financial crises. People have always been driven by greed and their obsession for money and thus have come up with legal and illegal ways of obtaining lots of it. Moreover, just as the majority of people spend more than what they earn, governments too do so, resulting in huge debts that de-stabilise financial systems. Since it is not possible to get to the actual causes of world economic crises unerringly, we can only speculate the causes behind the latest one and they include: (1) very low interest rates; (2) subprime loans particularly for the mortgage market; (3) Housing boom speculation; (4) huge pay checks for executives; (5) the advent of complicated financial innovations associated with rapid changes in the ICT industry and (6) deregulation of the financial markets (Claessens & Kose, 2013; Tcherneva, 2012). A number of financial crises have always come after credit and asset booms. Several theories and observations have supported this. However, governments or financial regulators explanations for why they don't intervene until these credit booms or asset bubbles are left to continue until they become unsustainable and become crunches or busts has always not been satisfactory (Pfeffer, Danziger & Schoeni, 2013).

There are two types of financial crises: the first types are those which are classified utilizing strictly quantitative definitions and the second type are defined by using judgemental or quantitative analysis. The first type of crises include sudden stop and currency crises and the second type include banking and debt crises. Integration of the global economy means that the effects of these financial crises spread quickly around the world and the effects are often seen on different fronts. For instance, author Aluko (2008), noted that the debt crisis in the U.S. during the recent economic downturn resulted in amounts of foreign direct investments and other kinds of investments from Americans to other developing and developed countries reducing significantly. The economic downturn also caused the collapse of stock markets around the world (Olaniyi & Olabisi, 2011).

Methodology

The huge stock market fall in the early in the second quarter of the 2008/2009 financial year marked our first point of data collection....

A survey designed to cover a wide range of issues such as life satisfaction, health metrics, employment status, retirement realties and expectations, housing, stock ownership, latest transactions and decline in value, expectations about future returns, and future plans for asset accumulation was administered to the ALP (American Life Panel) in November of 2008. The survey was followed up in February the following year by a longitudinal interview on the same issues (Hurd & Rohwedder, 2010).
In the first survey, 73% of the households revealed that they had cut spending because of the financial crisis. The spending cuts by households are of scientific and policy interest and so there is important value in carefully measuring the degree of such cuts, for example, effects of the financial crisis on social welfare are partially dependent on consumption. The huge spending cuts prompted a re-orientation of the survey to include collection of data on spending (Hurd & Rohwedder, 2010; Claessens & Kose, 2013).

From the start of the second interview, a monthly interview schedule had been established to cut the risk of recall error on spending and to gather data at high frequency on issues such as expectations, employment, satisfactions, mood, and affect. The goal was to allow detailed assessment of events and their implications. During each interview, questions were about spending in the last 30 days. The 25 categories made up a total of about 70% total spending. After every quarter, questions were asked about 11 additional categories. Measures of quarterly and monthly surveys revealed total spending from February to May (Pfeffer et al., 2013). The quarterly surveys continued until April 2010.

The monthly survey panels design permitted the observations of the immediate effects of the financial crisis then that could not be captured by low frequency retrospective studies (Claessens & Kose, 2013; Tcherneva, 2012). The monthly measurements of total spending also reduced recall bias around high frequency purchases. The repetitive surveys also elicited high frequency subjective probabilities and measures of mood that often respond in unison with financial events (Tcherneva, 2012).

The respondents numbered 2,693 and had participated in at least one interview of the 14 that were conducted. The retention was also quite good with over 73% of the respondents participating in at least 10 of the interviews and 40% participating in all the interviews. The retention rate was high because the interviewers urged the respondents to continue participating even if they skipped some of the intervening interviews (Pfeffer et al., 2013; Arestis et al., 2013).

Analysis and research results

The main objective of the interviews and surveys was to find the effects of the economic crisis and the recession that followed on the financial well-being of households and on the families' responses to the economic instability. As a summary metric of the immediate effects, we concluded that a household was experiencing financial difficulties if: a respondent or his/her spouse was not employed; if the household had defaulted for more than 2 months on mortgage payments or if their house faced foreclosure; or if the family's house value had dropped to less than the value of the mortgage payments. The figure below shows in percentage the number of households that experienced financial difficulties. During the first survey 13.2% of the households were in financial distress and during the last survey done in April of 2010 the percentage had risen to 16.8% (Hurd & Rohwedder, 2010; Claessens & Kose, 2013).

The figure shows the percentage of households in financial distress (Adopted from Hurd & Rohwedder, 2010).

A regression line was fitted to the percentages and it revealed that there was an increase of 0.15% per month from the regression or a 2.6% total across the seventeen months. The figure's second column shows the cumulative metric i.e. the percentage of households that since the November 2008 interview had indicated that they were in financial distress in at least one of the interviews. By the time the last interview was being done, data revealed that at least 39% of the households had at one time been or are still in financial distress. This shows that the negative economic effects of recession are not receding and that the effects are widespread, a conclusion drawn from the fact that by the end of the study the unemployment numbers had not significantly reduced and the housing had not recouped the drop in values (Arestis et al., 2013). Those who have lower incomes were the most affected by the financial distress: the percentage of those in financial distress was 22% among households in the lowest income quartile and 13% for those in the…