Thursday, January 15, 2009

Economic recession in 2008 - Causes

Economic recession in 2008 - Causes


The following letter attempts to analyze the causes of the economic downturn done in the second half of 2008, a sketch of crisis to be completed drawing in the next five years.

1 .- Stagnating oil prices (easily surpassing the $ 100 a barrel), driven by geopolitical uncertainties, the collapse of stock markets and subsequent diversion of speculative investment market and the expected oil production cuts by the OPEC.

2.-Continued escalation of prices of staple foods (around 15%), due to the effect called "second round" (translation by companies from increased costs of crude oil and raw materials along with wage increases the prices of manufactured products; abusive margins of companies and brokers and a totally inefficient administration and lack of mechanisms to control the ceaseless desboque with consequent rises in inflation and subsequent contraction of consumption.

3.-runaway inflation rates close to 6% and unbridled growth of foreign debt (d 2.5 billion U.S. dollars) and current account deficit (15% of GDP) for 2008 as a result of the above two points, with a consequent drop in state revenues Autonomies and loss of purchasing power of workers in a near future due to salary increases below the inflation rate or the freezing or reducing them.

4 .- Rise in interest rates by the European Central Bank to reach 4.5% in the last quarter of 2008 with the aim of trying to curb rampant inflation in the euro zone (close to 5%) the immediate impact on mortgages and bank loans due to increases chilling Euribor (up almost 6%); economic strangulation consequent extensive social and dramatic increase in delinquencies and embargoes banking collapse of securities (around the IBEX 10,000 points at the end of the year) and diversion of investment to fixed income and real estate.

5 .- An increase in the rate of unemployment up to 12.5% at the end of 2008, due to the outbreak of the housing bubble and subsequent domino effect in the sectors linked to the construction of a united euro artificially appreciated that the cause of the bottleneck exports and the stagnation of the tourism sector (into recession in the second half of 2008 and ending the year with a meager increase of 1.5% of GDP), with the proverbial drop in state revenues and the consequent contraction of investments basic infrastructure and social services.

5 comments:

  1. According to me we should take recession as good event, I know that all will disagree with me but I have some explanation on this, we all know that saving money, spending limited money are very much essential points for our financial security but still we don't follow it. Recession is the way by which we all can learn how to save and spend without any tutor for that. For more details on global economic recession refer global economic recession

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  2. Thanks urvi for dropping by,

    I think you are right in many ways....it was due and it happened.

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  3. But main reason Ithink was vast distribution of loans by american banks??????????????????

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  4. Yes, you forgot the fact that the housing market crashed due to the careless spending on Bill Clinton's part and how his housing bills led to the distribution of morgages to people who couldn't afford them. Once they were unable to pay them, a surge in foreclosurers occurred and our economy went down hill from there

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  5. Acquiring a bill protection insurance beforehand is one of the best preparations for a recession. We should all anticipate it so we can be well prepared.

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