Economic Recession

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Economic Recession of 2007
William Mwangi

Class title and section
Professor’s name
Due date of Assignment: 26th August 2011.
William Mwangi
Economic crisis Class
Professor’s name
24th August, 2011.
Economic Recession of 2007: What caused it and what were the after effects? Can we predict another major recession?
Thesis Statement: Although the recession that dates back in 2007 is still long and deep and surely has shown some recovery, the potential that it will completely recover is still vague.
I. Causes of the 2007 recession
A. Inflation
B. Housing Prices
C. Oil Prices
- Recovery measures
A. Cutting Production cost
i. Caused unemployment
B. Increase Interest rates by the Federal reserves
i.
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Current Account Deficit,” he explained that economic crisis has its background way back – a decade ago, as the developing countries had modest trade and account deficit of which was financed by borrowing from the rest of the world in order to invest more than save, bringing about financial crisis i.e. they will be rich in future by constructing infrastructures but face recession in present.
Housing prices was another contributing cause to the recession. In the decade going towards 2006, housing prices spiraled up by more than 25% due to high demand, decline in lending standards, and low interest rates in the 2000s. Between 2000 and 2006 large number of borrowers took out mortgages as they were lured by the prevailing favorable rates. This had the effect of fetching all and sundry including those individuals with bad credit records. The Federal Reserve began to raise fed funds thus interest rates cropped from 1.25% to 5.25% - a reasonable level to fight the inflation level as well as overall loans between banks. Expensive repayment on loan had the effect of softening housing markets since borrowing was costly.
According to Bernanke, “by August 2007, nearly 16% of mortgages were in default,” (qtd. In Jones 6) this explains the advancement in the problem due to low housing prices that led to defaults and further lowered housing prices even further in a vicious cycle. In addition,
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