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The Great Recession Essay

626 Words3 Pages

The 2007-2009 recession, was the longest of its kind since the 1930’s. One thing that’s worth mentioning about “The Great Recession”, as it is sometimes called, is that no one saw it coming. This situation is greatly attributed to the housing bubble burst in 2006-2007. It was wrongly believed that the housing market couldn’t depreciate in value. ”When the long held belief that home prices do not decline turned out to be inaccurate, prices on mortgage-backed securities plunged, prompting large losses for banks and other financial institutions. (Beattie, n.d). The cause of this market crash was that members’ of society, corporations and even foreigners were heavily invested in the housing market with hopes of doubling and even tripling their …show more content…

The Fed was trying its best to keep it under control. In 2008, an increase in inflation was rather noticeable, and was cause of great worry due to the fact that with the unemployment rate of 5.9% it was getting more and more difficult for consumers to purchase goods. The Fed’s monetary policy approaches focused on keeping the interest rate on mortgage loans low, to the point that it was relatively equivalent for someone to get a mortgage loan with similar interest rates as the Fed itself. Moreover, the Fed also started purchasing billions of dollars in long term treasury securities while aiming to sell the same amount in short term treasury securities. All of these monetary policies were focused on reducing long term interest rates. However, interest rates were going to reduce regardless due to the fact that the demand for loans had decreased thanks to unemployment. These policies also caused deflation in 2009 and this deflation is greatly responsible for the whopping 9.4% unemployment rate of that year. Price of goods decreased tremendously because simply put, people didn’t have the means necessary to keep the GDP in constant growth. In figure 2 we can better observe how severely the inflation rate dropped in

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