The worlds crippling crisis
Day 13: “The 2008 economic recession”
Today I will be simply looking at the 2008 economic recession and it’s effects on the UK as a whole. I will then go over the UK’s strategies that were adopted to get the country out of the crisis as soon as possible and with the lease amount of damage to the UK’s economy. Today promises to be no less interesting blog than the other ones I have made in this series of short blogs.
Why did it happen
The year leading up to the economical global crisis saw a period of rising economic growth, low inflation and falling interests rates. This created a sort of mood of optimism among investors underpinning a marked increase in borrowing. Low interest rates encouraged investors to look for investments that earned more money, which inevitably lead to excessive risk-taking. The trigger was the bursting of a bubble in the US of A house prices that had drawn new and less wealthy homebuyers into what became known as the sub-prime market. Investors around the world were able to invest in the boom via a financial involvement called securitisation. this created new and interesting products by bundling up lots of individual mortgages into a new product that included both poor — quality and high — quality mortgages. As housing prices fell and mortgages borrowers could no longer afford their interest rates payments, institutions that had borrowed and invested heavily were left with large losses.
This all put together cussed a series of banking failures leading to the bankruptcy of Lehman Brothers in September of 2008. In the UK the government had to step in to rescue Northern Rock, Bradford & Bingley, Lloyds TBS, HBOS and the Royal Bank of Scotland.
What it did to the UK
The 2008 financial crisis led to a global recession, and in 2008–2009 the UK suffered a critical and severe downturn. Over that period hundreds of thousand of businesses shut down and more than a million people lost their jobs.
The Economic fall of the UK’s GDP was the greater than any other since the Great Depression of the 1930s and at the start of 2013 was over three percent below its 2008 peak. As the economy had shown virtually no economic growth, housing prices had plummeted and unemployment had skyrocketed upward. Despite this, the employment rate in the UK fell by much less than anyone expected given the fall of GDP and has recovered to a much greater extent than output. This on the outset seems to be because the UK labour market is more flexible now than in previous recessions: wages have fallen in real terms, reducing the pressure on the employers, and the employment service had been better at helping people into jobs rather than people out of jobs.
Our strategies to save ourselves
The outgoing Labour government provided a fiscal stimulus during the 2008–2009 economical crisis that included a cut VAT and extra sending. They planned to meet the problem of higher public debt by cutting spending and increasing taxes. Economists call this fiscal consolidation while on the other hand politicians and everyday journalists called it austerity. In 2010 the Coalition Government accelerated the fiscal consolidation system that was in place at the time. Most economists agree that this austerity programme has led to slower economic growth in the UK. In co-operation with the EU partners and other major global powers and economies, the UK financial regulators have taken steps to ensure that the financial institutions reduce the amount of risk they take on and have a greater protection against future economic crises in the form of higher capital reserves and more liquid funds to cover sudden funding gaps in the wider economy.
Professor Van Reenen said that “the coalition overestimates the ability of the UK’s economy to withstand its tough programme of fiscal consolidation. the impact of these cuts is much worse in deep recessions when interest rates are near zero, when our main European trading partners are also locked into similar austerity programs and when the cuts are loaded on to investment rather tan the current spending.” Following on from this the UK also plans to ring-fence high street banks from their higher-risk investment banking arms. The question is whether this regulation will be adequate in the near future or not. The real question that should be asked is that will banks find ways around the rules? Should there be a structural separation between the investment and high street arms of banks? All that we can sum up and say is that the UK could have done a far more economically profitable solution and could have adopted a better strategies to dig its way out of the economic hole it was in.
Most of the above information was taken from one sight and is a very closes copy of the article in question. You can go to this site to read into the global financial economic crisis in more depth if you wish. I will also add a link to that sight.
Look to the
That’s it for Day 13, I really hope you liked todays blog and go away with a slightly better understanding of the large-scale and worldwide damage that 2008 recession caused and especially how it affected our country. I want this blog also to be able to show the economic steps that the UK took to save itself. The next day will be the last and concluding day to the series. Day 14 will be called, “What will 2020 bring.”