The great recession in America

¶ … great recession in America

The Current Recession in America

The global community is now more than ever concerned with an economic crisis which commenced within the United States real estate sector, and soon afterwards expanded to the entire American and global economy. While there are several topics of interest related to the crisis, the most stringent ones refer to the causes of the crisis, the position and role played by the United States Congress, the manifestation of the crisis with particular emphasis on the lack of liquidities and the effects of the economic recession.

At a most basic and simplistic level the economic crisis was formed on the bases of the real estate crisis, which was in turn formed as the result of dubious transactions and the issuing of sub-prime mortgages. The Congress played a pivotal part in the meaning that it inadequately regulated the operations and it as such allowed for the situation to enhance. At a more specific level, the causes are presented as follows:

The uncontrolled "housing boom and bust" (Sowel, 2010)

The instability of the labor force due to the aging of the population and the high rate of joblessness

The financial losses of economic monoliths

The population's destructive habit of living on debt (massive purchases on credit cards)

The inability of the population to reimburse its home loans (defaults on mortgages)

The increase in the retail prices of essential commodities

The decision of economic agents to halt the hiring process

The decision (or necessity) of populations and economic agents to spend their savings on day-to-day expenses, rather than have them invested

The decrease in the national output, materialized in a decrease of the gross domestic product

Generalized panic (More Business, 2008)

The United States Congress has played an important part in both the generation as well as the manifestation of the economic crisis. At the first level, they allowed financial institutions to easily grant sub-prime mortgages. At a secondary level, they forced banking organizational to implement more prudential decision making strategies and to no longer expose themselves and the economy to such great risks. Third, the Congress stimulated the financial institutions to pick up lending operations in order to increase the population's access to funds and as such stimulate economic revival. The specific actions taken by the United States Congress include the following:

The interdiction of foreclosures and the obligation of financial institutions to offer refinancing options for the customers

The grating of a $168 billion economic stimulus which included tax deductions for business owners and tax rebates for home owners. The impact of the decision was however short lived.

The efforts in the issuing of a second stimulus package in the amount of $850 billion. This second package is expected to be more effective as it will focus on increased sales and spending, rather than tax deductions alone. Critics however argue that the benefits of this stimulus package will also be temporary and that the contracting economy might need a third stimulus, but it is yet unsure whether the Congress would be able to grant it (Moseley, 2009).

In spite of the efforts implemented by the American Congress, fact remains that the economic crisis was extremely severe and its threats could not have been removed. Paul Mason (2010) for instance agues that the crisis could not have been avoided as it was constructed on three decades of neoliberal policies, which eventually took their tool on individual companies such as Ford, the Wall Street giants, and finally the entire economy and the population.

One particular impact of the economic recession is the lack of liquidities which, ironically enough, only deepens the current economic problems. The occurrence of this liquidity crisis is extremely simple to explain -- the players in the economic community lost their trust and as such investments froze and the liquidities next to disappeared from the market. Stock market investors lost the trust in the companies and strived to sell their shares, rather than purchase new ones. Banks and other financial institutions refused to lend each other money as financial aid because they feared that their competitors would not be able to reimburse the bank loans. Also, in relationship with corporate or individual customers, banks increased their regulation procedures and refused loans as they did not trust the reimbursement capabilities of the credit solicitants. As a result, most of the liquidities are blocked.