Economics recession - Assignment Example

The beginning and impacts of the 2008 recession in individual countries today remains a constant reminder of the policies and measures the governments and financial analysts in the financial institutions ought to address as priorities. Most economists and analysts tend to an emphasis on the start and spread of the recession in 2008. While its spread is quite clear in the western countries during and after 2008, there is no doubt it began in the United States towards the end of 2007. The National Bureau of Economic Research (NBER) recognizes the global recession to have started in December 2007 in the US economy, when it was identified with the sliding of the labour market especially in the last quarter of the year (Borbely, 2009).

However, it was only a hit for the national economy of the US until it spread to other linked economies in 2008. The cause of the recession is linked to the cyclic economic performance of the housing market in USA, which later affected the economic performances of other industries. The United Stated had been experiencing a steady economic growth, with a healthy labour market and a rapid growth in the housing market after 2001. In the housing sector, home prices increased and more construction took place, contributing to increased employment, mortgage financing and growth in real estates and generated a positive wealth effect that triggered higher spending vital for the overall economic growth (Goodman and Mance, 2011).

All the housing price inflations in the USA tended to follow a particular pattern after WWII. The 2001-2006 case was no exception, as it was a period marked by loose monetary policy. Two years prior to the 2007 recession, the US economy experienced expansion in credit and money supply. This fuelled excessive borrowing at low-interest rates to finance housing purchases; this in turn increased aggregate demand for household products and other consumption (Stlouisfed.org, 2010).