Summary Of The 2008 Financial Crisis

The Financial Crisis of 2008, which was followed by the Great Recession, had a significant impact on the economy of the United States of America. Although America had the largest economy in the world at the time, the Financial Crisis was still able to devastate the economy and significantly impact income, inequality, and poverty. This breakdown in the economy was essentially caused by the distrust present within the financial system, especially between banks.
In 2006, housing prices began to plummet causing a decrease in the overall wealth of many individuals. Concurrently, mortgage rates were beginning to increase at abnormal rates; due to the increasing default rates, the value of the mortgages began to decrease. This had a domino effect,

lost 23% of the wealth (Smeeding 2). This drop-off proportion was the largest decrease in wealth for the middle class since the Great Depression. Due to the fact that a majority of Americans had a lost wealth, the economy began to suffer because the quantity demand for many products began to decrease. As a result, businesses and firms began to suffer which led to a downfall in the national economy. Another repercussion of the falling economy was a significant increase in unemployment. Unemployment rates increased from 4.4% in May 2007 to 10.1% in October 2009 (Bureau of Labor Statistics 2017). As unemployment rates steepened, many households’ incomes dropped; unfortunately, this meant that many households dropped below the poverty line. The poverty rate in America increased from 12.5% in 2007 to 15.1% in 2010 (Gongloff 2017). As indicated by both of the aforementioned statistics, many Americans were out of jobs and did not have enough money to support their own families. As poverty and unemployment increased, economic mobility began to decrease because many of those in the bottom quintile of income did not have access to many of the resources that others had at their disposable. These factors, in turn, led to an increase in income inequality. The bottom quintile’s income share fell to 3.6% in 2009 and the top quintile’s income share leaped from 42.5% to 49.4% (Smeeding 2). This

When the American economy and businesses began to slow down, the U.S began to import less. This decrease in importing was highly significant and had a major effect on America’s major trading partners. America’s trading partners had declined their exports, which led to an economic shock in those countries. Many of these countries relied on trade; however, the decrease in trade caused many of the major economies to fall around the world. Although the American government tried to take action to improve the economy again, none of the short-term actions made significant improvements. The inflation rate in 2009 was -0.4%, the lowest inflation rate since 1955 (Bureau of Labor Statistics 2017). This directly correlates to the increase in unemployment, because there is always a tradeoff between inflation and unemployment. Inflation and unemployment cannot both decrease concurrently; in this circumstance, inflation was prioritized so that inflation would decrease, which led to a further increase in