High mortgage rates destroyed the value of mortgage-backed loans, which is the primary asset of the savings and loans association. The fixed-rate loans were sold at a loss in order to balance withdrawals. That asset liability mismatch was identified as the primary cause of the savings and loan crisis. Jobs were lost and unemployment rose from around 7.5% to more than 10%. The recession caused a loss of 2.9 million jobs, representing a 3% drop in payroll employment.
The unemployment rate based on the Bureau of Labor Statistics from the 1960 - 1961 peaked at 7.1% which the 1960s are considered to be a recession because of the decrease in real GDP and the increase in unemployment. Based on the federal reserve during 1950s - 1960s, the Federal Reserve followed a monetary policy that worked toward to keep both inflation and economic growth reasonably stable, this shows that monetary policies can also cause a recession which means that keynesians economics can actually be an economic disaster. This is significant
CHAPTER 2 LITERATURE REVIEW INFLATION (InvestorWords, 2015) stated that inflation is the increase in the general price level of goods and services in economy, normally caused by excess supply of money. Inflation usually measured by the Consumer Price Index (CPI). When the cost of producing goods and services goes up, the purchasing power of dollar will decrease. A customer will not be able to purchase the same goods and services as he/she previously could. Inflation rate of 1-2% per year are acceptable and even desirable in some ways (Investopedia, 2015).
During the period between December 2007 and June 2009, the world markets faced the worst, largest and longest economic downturn since the Great Depression 1929. The Great Recession is a term that represents this economic crisis. Timing of the recession varied from country to another. The influences of the Great Recession were remarkably severe in several aspects such as, the unemployment rate and real gross domestic product. It also can be observed today from the reformed world of monetary and investment banking how outsized they were.
In response to the political pressure on spending from the large deficits, in August 1985 the “Balanced Budget and Emergency Control Act” – better known as the Gramm Rudman-Hollings bill – was approved (ibid.). It established a ceiling for the deficit for each fiscal year but it was not enough to bring the government spending back to the time in which Reagan took office. Furthermore, even though in the mid-1980s the economy recovered from a severe recession, the government little sustained economic improvements for most Americans; as a consequence, by the late 1980s, middle-class incomes were barely higher than ten years before and the poverty rate had dramatically risen (Krugman,
The recession started in 2008 by the stock market crashing like the great depression started. People who had money in stocks again lost large sums of money. Both the great depression and the recession of 2008 had banks that collapsed, and businesses that closed (State). This is a sign in both situations that the economy is not headed in a good direction. The Similarity is that people lost confidence in banking because many banks had to close in the depression, and some had to close because of the recession in 2008 as well.
In the wake of the financial crisis of 2008, many department stores struggled and were still able to remain in business while other department stores could not keep afloat and had to close their doors. By the end of 2008 the world 's major economies were in recession. This led to almost two million jobs lost in the U.S. This also resulted in the rate of unemployment rising to 7.2%. Due to the huge amount of layoffs taking place, the monthly income of families were dropping causing for dramatic cutbacks in consumer spending.
This means as employees’ nominal wages increase with inflation their real wage (purchasing power of nominal wages) may remain constant. Since inflation reduces the incentive for households to save, it causes a shortage of savings for firms to borrow. Firms finance investment (the purchase of new capital goods) by borrowing money. Therefore, if there is not saving funds for investment will
Secular Stagnation Famously introduced by Alvin Hansen in a Presidential Address in 1938, secular stagnation fears were revived by macroeconomists following sluggish growth in advanced economies since 2008. The causes, still being debated in the field, point to two instigators: chronic low demand argued by Summers or a loss in potential output supported by Gordon. The American economy has not grown at a sustainable pace over the last 25 years. The dot.com bubble supported growth in the 1990s then tumbled the economy between 2001 and 2004 after which the housing bubble took the reins until the financial crisis in 2009. Since then and with interests at their lower zero bound, growth has been sluggish.
U.S. economics professor Robert Gordon attributes the recent slowdown in economic growth in the U.S. to four main headwinds: demography, education, inequality and government debt. This paper will analyze two of these headwinds, demography and education, both of which are connected to innovation positively or negatively. The first headwind is demography. In general, the U.S. population is projected to grow more slowly in future decades than in the recent past, which will result in a decline in labor force participation. These demographic changes have a significant impact on economic growth.