The United States and Europe experienced the worst economic crisis from the year 2007 to 2008 that led to shock waves across the globe. The crisis was brought about by some factors which included the subprime mortgage. It affected investment bank, a situation which forced the government to intervene to bail out financial institutions that had collapsed. The crisis led to the great recession. Blinder (page 412) identified three main factors that contributed to massive economic reduction in the U.S and across Europe.
Blinder identified the similarities and differences between the causes of the crisis in the United States and Europe. First, there were the deficit and debt bubbles. The US government had debts that they could not pay. Both states had a deficiency in their budgets. The consequent governments tried to cut on spending cost and increase the revenue by increasing tax. Like the US, it cut costs by privatizing healthcare. Another cause of the crisis was that the government used the available funds to bail out the financial institutions that had collapsed. One expert in economics noted that the influx of investment money required to fund the U.S. trade deficiency was the source of the housing bubble and monetary disaster.
Blinder also pays attention to the outrageous extent of private pending payment in the US economy. The U.S government and European governments faced an increase in mortgage payments. The people who were in real estate and the provision of housing were unable to pay the mortgages because there was a reduction in the housing bubble. Therefore the governments had to pay the loans hence an increase in the financial crisis. As their changeable rate mortgage amount increased, families began to fail to pay in record numbers, causing mortgage-backed securities useless. The accumulated private debt levels also affected development by making economic decline intense and the successive retrieval weaker. Due to the worldwide monetary crisis, many families witnessed their valuable material possessions reducing their debt, and, with small earning and more unemployment, they found it strenuous to pay mortgage installments. The original house prices had decreased from their peak in countries like Ireland, Iceland, Spain and the United States. Household deleveraging by paying off debts or failing to pay begun in some countries.
The Housing bubble affected over a half of the states in the United States and Europe. The bubble led to an economic crisis in both U.S and Europe. The prices of the houses increased in the year 2006 and rapidly reduced in 2007 all the way to 2012. By the year 2008, the drop in prices was reported to be the largest in history. The subsiding in housing bubble had a direct impact on home valuations and the real estate. It became a risk to both economies of the U.S and Europe. Therefore the government had to allocate some funds to cover for the private loans and saving acts associated with a housing bubble.
There were specific characteristics of recessions in America and Europe were; First, for the United States, there was a fall of States Housing bubble, collapsing of house assets which led to an all over the world financial crisis. The prices of food and oil shot up. The calamity led to the collapse of many financial institutions like Freddie Mac, Lehman Brothers, AIG, and Citi Bank. It was also the same case for Europe. For example, the recession led to high rise in asset prices, low risk insurance payment, availability of cash, and powerful levering (Buti, page 144).Therefore, the specific features of depression of both states were similar.
When the European and U.S states were affected by the economic crisis, they strengthened their economic control was made stronger. The European Commission received new obligation to devise the Stability and Growth Pact, they issued particular guidance, and identify hindrance that was supposed to be removed to promote extension. A Europe statistical bureau became more substantial in verifying the data received from each state. The Europe countries made facilities that would make sure there is financial stability. These establishments yielded positive results: no nation was forced to exit the euro area, the cash-for-reform approach worked, and growth increased in states that implemented performance reforms. Therefore, there was no usage of taxpayer money was on the rescue programmes.
There were distinct differences in the U.S and Europe their policies to address the recessions in their states. For example, the United States' government had to intervene during the financial crisis by putting in place the programs that will insure the affected investments. There were temporary exceptions whereby monetary groups were allowed to share funds within their group with ease. The commission in charge of Securities and Exchange announced the end of selling financial stocks as a way to address the mortgage disaster. On the other hand, Europe had its policies too. For instance, the policy measures were restricted to a small number of member states which included Spain and Italy. The measures taken were dedicated to reformations in taxation systems to support specific sectors like housing. There was also a proposed plan to help people cope with monetary problems facing the economies of the member states.
As a nurse in a local hospital in Greece, I will feel so disappointed and worried if the European Union and European central bank my pay and pension be dramatically cut. The reason for my disappointment is that I will not be able to provide adequately for my family. To cut pension will mean that I will not be able to access the medical services .lack of retirement benefits would result in poverty and without any support from the government.
If I am a German employee, and the government demands to bail out Greek economy, I will not worry nor be disappointed because I know that our country has a stable economy. So long as my health insurance, nursing care, and education policy are not affected, then the government can proceed with its demand to bail a country with the financial crisis. We only spent 20% of our income on support services like healthcare. Therefore, a slight increment towards the services that we access will not affect my earning, as compared to Greek workers who are paid low salaries hence low income.
Losing employment is a very a lamentable occurrence that can happen to anyone. Therefore if I lost a job and had a mortgage, I will be frustrated, but on a brighter side, I will not have anything to worry about because I know that there is a program that will take care of my mortgage. Legislation of American Recovery and Reinstatement Act includes tax reliefs, development of unemployment welfare and other social benefits of provisions. Am sure that my health and education services will be catered.
Blinder, Alan S. "Talking about monetary policy: the virtues (and vice?) of central bank communication." (2009).
Buti, Marco. "Balancing imbalances: improving economic governance in the EU after the crisis." CESifo forum. Vol. 12. No. 2. Munchen: ifo Institut fur Wirtschaftsforschung an der Universitat Munchen, 2011.
Cite this page
Paper Example on Economic Crisis in the United States and Europe. (2022, May 12). Retrieved from https://proessays.net/essays/paper-example-on-economic-crisis-in-the-united-states-and-europe
If you are the original author of this essay and no longer wish to have it published on the ProEssays website, please click below to request its removal: