Economic Recession By Kimberly Amadeo: Article Analysis

In the article, “Causes of an Economic Recession” Kimberly Amadeo described how a recession can occur and how it can affect our economy in a drastic way. Amadeo stated, “Economic recessions are caused by a business loss and/or consumer confidence. This is the tipping point of the business cycle where the peak point moves into contraction. This loss of confidence makes businesses and/or consumers stop buying and move into defensive mode. Once a critical mass moves toward the exit sign, panic is set in and has created a destructive downward spiral. Therefore, you can get high rate of mass layoffs and high unemployment. Manufacturers cut back in reaction to falling orders, further increasing layoffs. To restore confidence, the Federal government

When rates rise, they limit liquidity, or the amount of money available to invest. The biggest culprit was the Federal Reserve, which often raised interest rates to protect the value of the dollar. The Fed raised rates to battle stagflation, causing the 1980 recession. It did the same thing to protect the dollar/gold relationship, worsening the Great Depression. 2.) A stock market crash. The sudden loss of confidence in investing can create a subsequent bear market, draining capital out of businesses. She also discussed how a stock market crash can cause a recession. Amadeo suggested, “3.)Falling housing prices and sales can cause an economic bust. As homeowners lose equity, it forces a cutback in spending as they can no longer take out second mortgages. Over time, it will cause foreclosures. This was the initial trigger that set off the Great Recession, fut for different reasons. Banks that lost money on the complicated derivatives based on underlying home values (Amadeo,

CNN introduced the NBER, which is the National Bureau Economic Research. The NBER is a private organization for leading group economists charged with dating the start and end of economic downturns. It typically takes a long time after the start of a recession to declare its start because of the need to look at final readings of various economic measures. Chris Isidore from CNN news suggested, “The NBER did not give any reasons or causes of the recession. But it is widely accepted that the housing downturn, which started in 2006, is a primary cause of the broader economic malaise. The fall of housing prices from peak levels reached earlier this decade cut deeply into home building and home purchases. This also caused a sharp rise in mortgage foreclosures, which in turn resulted in losses of hundreds of billions of dollars among the nation's leading banks and a tightening of credit.” “The current recession is one of the longest downturns since the Great Depression of the 1930's.Chris Isidore quoted Rich Yamarone, “Rich Yamarone, director of economic research at Argus Research, said the only good news for the economy is that some of the steps already taken by the government earlier this year could start to spur growth soon. For example, he said interest rate cuts by the Federal Reserve, which started in September 2007, "should be working their magic any day now." “In February,