Overview Of The Economic Crisis In 2008 Finance Essay
In the December 2007, an economic crisis had been ferment and begun in the United State. It can be described as a Great Recession in the late-2000s recession. But this Great Recession had been used to refer to use by every recession of the several preceding decades. It can be measured by change in the quarterly Gross Domestic Product (GDP). Economic crisis are spread too much to the industrialized world, even to the global. This time crisis has caused an apparent deceleration of economic activity.
In addition, global economic crisis was sparked by the explosion of the economic crisis 2008. It has been taking place in an economic environment; it had been characterized by various imbalances. A global recession has different in some part which in international trade and can be raising unemployment and steep fall in the commodity prices.
In December 2008, The NBER which is National Bureau of Economic Research had announces that the United States (US) had been in recession from December 2007. For the situation leading up to the crisis can be distinguishing by an excessive rise in asset prices and coalition boom in economic demand. It can be considered as a result of the continuously period if it can be easily available credit. It can be result in inadequate of the regulation and ignore, or even increasing inequality.
For the United Kingdom (UK), it looks like not avoid in recession in 2008. Manufacturing output of United Kingdom decrease to 7% in the end of 2008. It has been affected a lots of parts of the country like banks and investment firms. It can become a longest recession after the war.
In addition, for the both market based and its regulatory solution have been carry out or under the consideration. But it can be significant risks remain for the world economy over the 2010 to 2011.
Besides that, we have mention about United State and United Kingdom both country have been facing many problems during economic crisis in 2008. Economic crisis only effect to UK and US, but it also effect to globalization.
For example, economic effects in US had included the Real Gross Domestic Product (RGDP) that is the output of services and goods produced by property and labor in United State. It had shows that had been decreased at an annual rate of nearly in fourth quarter of 2008 and continuously in first quarter of 2009. This had shows that the same activity in the period of year ago. Besides that, unemployment rate in United State (US) had increased to 10.1 percentages on October 2009. It can be the highest rate from 1983 and approximately twice in the pre-crisis rate.
In addition, the International Monetary Fund (IMF) which at the Washington, D.C., had launched that numbers foretells a worldwide recession by -0.3% for the 2009. It averaged over the developed economics. Bank of England and European Central Bank had been separately reduced their interest rates. Bank of England had reduced interest rate was from the 4.5 percent down to three percent. On the other hand, European Central Bank had reduced their interest rate from 3.75 percent down to 3.25 percent.
As a result, several countries in the world had launched large ï¿½ï¿½help packagesï¿½ï¿½ for their economics starting from November 2008. For the US part, in the 19 September, The Treasury, and The Federal Reserve, and the Securities and Exchange Commission took several steps to interfere. The main idea is want to stop the possibilities run on money market mutual funds.
Besides that, The Treasury also declared a new $50 billion program to ensure the investments. That is similar to the FDIC program. FDIC is the Federal Deposit Insurance Corporation. The Securities and Exchange Commission had been declared abrogation of short selling of 799 financial stocks. It as well as action against undisguised short selling, it can become as a part of its behavior to the mortgage crisis.
In addition, United State had reforming their legislation for their economic. Government had proposed legislation about the purchase up of 700 billion US dollar of ï¿½ï¿½troubled mortgage related assetsï¿½ï¿½ from the financial firms. This legislation was hopes that improvement the confidence in the mortgage-backed securities markets with the financial firms involved of it. After the discussion, hearings and meeting, the proposal would undergo important issue change before it can be approved by Congress. The bailout money was mainly used to purchase preferred stock in banks replacement of trouble mortgages assets.
Obama administration declared about a stimulus plan to renew the economy with the significance to save or create 3.6 million jobs more in two years. This recover plan included major policy, reform of the health system, reallocate to social assistance like the unemployed and families, remarkably to those investing in renewable energy, direct assistance to states to help finance health spending of Medicaid, and finally improve to access digital technologies. Although, this plans were mean to reduce further economic contraction. The present economic conditions are different from past recession.
Due to address the economic crisis, Federal Reserve had used its independent jurisdiction to purchase various financial assets and making decision about the emergency loans until to December 24, 2008. This can comprise emergency loans to temporary swaps of the treasury bills for mortgages-backed securities, banks, credit card companies and more.
Although, investors had begun withdrawals funds in the money market mutual funds, it can be experience significant this situation. This situation was integral to the continuous financing of corporations of all types. Asset-backed commercial paper (ABCP) can be defined by investors borrow money to money market mutual funds. It can supply the funds to those corporations in trade for the corporate short-term securities.
In addition, If a potential bank run had begun and become aggravate, major corporations had ability to secure needed short term financing through this Asset-backed commercial paper can be issuance, it would have been affected of significantly. US Treasury and Federal Reserve Bank had been declared that banks could require funds through the Federal Reserveï¿½ï¿½s Discount Window by using Asset-backed commercial paper as a securities deposit. It can be help with liquidity throughout the system.
On the other hand, United Kingdom government had been declared a bank rescue package in October 2008. This plan can be included by three parts, first was made ï¿½ï¿½200 billion to available to the banks in the Bank of England for the Special Liquidity scheme. For the second part, government will raise the banksï¿½ï¿½ market capitalization. Third part, government will briefly underwrite any suitable lending between UK banks. Sir David Walker was be nominated to lead as a government investigation into the corporate governance of banks.
We had mention in above United State government had declared the Bank rescue package. It can be a response to the continuous global financial crisis. These plans intend to restore market confidence and help to stabilize the United Kingdom banking system. It can provide for the guarantees of interbank lending and a range of the short term loans.
The UK Bank rescue plan was formally allowed the TARP that was the Troubled Asset Relief Program. UK Government invested in that plan will see that purchasing shares in the bank. It can be seen a return to the taxpayer in the future. On the other hands, United States government was purchasing the mortgages backed securities from the American banks. That mortgages was not able to be sold in the secondary mortgages securities market.
The United States program does claim the United States government and take an equity interest. US government can take this equity interest which in financial organization when they selling their securities into the TARP. But this U.S. plan hence does not address the essential the ability to pay the debt problem faced by the banking sector. However, it slightly is aimed at undertake the instantaneous funding shortfall.
On the other hand, the United Kingdom packages undertake both solvencies. This plan was through the ï¿½ï¿½50bn recapitalization plan; it can act of refinancing and funding. The enlargement of the Bank of Englandï¿½ï¿½s Special liquidity Scheme and the government guarantee to publish the banksï¿½ï¿½ debt issuances.
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