In 2008, America experienced a recession that can be compared to the Great Depression. The economy went from a period of expansion to a period of contraction in a matter of a few months and the effects of the recession we're still felt years later. The recession occurred because of a massive housing bubble that at any time could burst. The unequal distribution of money which included interest rates and credit also spurred the economy into crisis. The Federal Reserve not raising interest and keeping the rates low lead for the economy to spiral out of control. The recession had many effects on the American people which included a higher unemployment rate and the lack of business investments contracted the economy even further. Another …show more content…
Investors started to realize that investing in mortgages and real-estate was a wise move. This so called bubble seemed too good to be true and greed began to sweep through the stock market. After a while those who saw that the house prices were too expensive to pay, in turn the real estate investments began to lose money because the flow of investments were cut. Those who had invested money in mortgages and real-estate through the stock market began to pull their money out and than the bubble burst, causing a recession. The lack of money towards the housing industry lead to many houses being foreclosed. Those homes that were foreclosed brought the overall value of homes around them down( Investopedia). The bubble burst also caused many people who were looking to buy a home stay away because of the extremely high prices. For example some houses prices were over the top for how large the house is and how much square feet it …show more content…
“The Fed’s distortions create the boom and bust cycle by distorting the information that the price signal conveys to consumers and producers”(Kibbe). This boom and bust cycle can be attributed to the housing crisis. In 2001 when president Bush decided to keep interest rates low came back to bite the economy in 2008. The American economy was for a while experiencing a period of boom, but the Fed usually increases the interest rates so the economy does not bust. The Fed did not increase the interest rates and the set false economic signals to investors leading to a bust(