The Stock Market Crash Of 2008 Of The Great Recession.Edu A Deep Recession in a Global Economy

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A Deep Recession in a Global Economy

Fear and emotion are the rule every day in global financial markets. We’ve seen bailout plans that have caused shock and awe, the overnight consolidation of many troubled financial services giants, and a liquidity crisis affecting markets around the world.

In Germany, the collapse of the Hypo Real Estate rescue plan could spell disaster for that country, similar to the recent bankruptcy of Lehman Brothers in the United States. Also consider that bank bailouts are the order of the day in the Netherlands, Ireland and Greece, while Iceland is in the middle of an economic meltdown.

South Korea recently urged banks to sell foreign assets to raise dollars and pledged to use its foreign exchange reserves to protect creditors from the financial crisis that has gripped the United States and Europe. Meanwhile, National Australia Bank continues to lose value due to global concerns about the stability of the financial system, and China’s economy will not escape an economic downturn if its exports suffer from this extension of the global recession

The United Kingdom has just announced details of a £50bn bailout for its banking system. The bailout includes a proposal to use taxpayers’ money to invest in banks. The plan was two weeks behind the bailout plan in the United States, and financial stocks in the UK collapsed because of the delay in the plans.

The truth is that bad mortgages were pooled and sold by banks all over the world. Therefore, no one is immune to this mortgage crisis and economic downturn in the age of globalization. This is a global reality that international leaders do not seem to understand.

The problem is that this is the first deep recession in an increasingly global economy. Therefore, the actions of each country require global coordination. Indeed, there is a real need to deal with this economic crisis through international unity and cooperation. A one-sided approach to the crisis will not be effective and will make this recession last much longer.

In Germany and Ireland, one can already see the dubious result of fighting the global economic recession without coordination. Ireland has announced that it will insure bank savings, and Germany (Angela Merkel) has decided not to. The next day, as money flows out of Germany to safer havens, the country decides to cancel itself and insure bank deposits.

Of course, the European Union criticized these unilateral steps by Ireland, Germany, Denmark and others to guarantee bank deposits. The real question is, what were these countries supposed to do? Should they wait until they run on their banks and slide into the economic abyss? The European Union needed to act faster and with better leadership in this global economy. There also needed to be much better coordination on the part of Europe with the actions of the Treasury Department in the United States.

In America, the Dow Jones Industrial Average is down about 40% from its all-time high. Since financial markets have now lost more value than the average bear market of 28%, it’s safe to assume that the country is in the middle of a deep recession, or maybe something worse.

However, as global markets continue to free fall and prominent financial experts tell the average investor to get out of the financial market as it could fall another twenty percent, it is important to understand that the country is not going to go bankrupt.

The problem is that it may not feel like it on Main Street America in the near term. The unemployment rate could rise to about eight percent, and many good people would lose their jobs. Inflation will eventually rise and many small businesses will close for good. Meanwhile, the lack of spending on non-discretionary goods this holiday season will lead to many long, dark days at retail.

However, one must understand that cycles of economic recession are a normal part of life in a world of uncertain supply and demand balances. It may well be a deep recession, but remember John Rockefeller’s words after the 1929 stock market crash. He said; “Many are discouraged these days. Depressions have come and gone in my 93 years of life. Prosperity has always returned and will return.”

It’s been a while, but then he was right, and his words about the current financial crisis are right again. This is a deep recession in an increasingly global economy, and international economic cooperation is the best formula to end it.

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