The United States Economy- Recession

United States Recession : Role of Monetary System

Roots of the Recession

Felipe Medalla (2009 ) describes Ben Bernake 's assessment of the roots of the financial crisis in the global sense . As shown in Figure 1 , the collapse of huge and unprecedented U .S . housing bubble was the primary cause of the global financial crisis . Aside from the problems in the U .S . housing mortgage , there was also an extensive decline in underwriting standards . The large credit boom was due to breakdowns in lending oversight by investors and rating agencies . Also , increased

reliance on complex and opaque credit instruments turned out to be a very bad assumption about risks . Fall in the US imports (Figure 2 ) also preceded the financial meltdown and the contraction of the US Gross Domestic Product (GDP . The credit bubble in U .S . also allowed the Americans to live beyond their means . The American consumer become the largest engine of growth wherein they accumulated 6 .2 trillion worth of borrowings from 2000 to 2007

Figure 1 : Collapse in Housing Figure 2

US GDP Growth and Related Measures (Annualized Seasonally Adjusted Change From The Previous Quarter

2008 :Q1 2008 :Q2 2008 :Q3

Gross domestic product (GDP ) 0 .9 2 .8 -0 .3

Personal consumption expenditures 0 .9 1 .2 -3 .1

of which : Durable goods -4 .3 -2 .8 -14 .1

Gross private domestic investment -5 .8 -11 .5 -1 .9

Nonresidential 2 .4 2 .5 -1 .0

Residential -25 .1 -13 .3 -19 .1

Exports 5 .1...