The world economic crisis is a phenomenon characterized by a sharp deterioration in all financial indicators. This state of the economic sector rocked the world in 2008. The scale of the crisis is comparable only to the times of the Great Depression. For the first time in the past seventy years, the value of the gross domestic product has reached a negative value. Some people still feel the consequences of this phenomenon, although not so sharply. This article will provide an analysis of the 2008 crisis - why it originated and how the world community felt its impact.
The inception of the crisis
The economic crisis did not start overnight. Why did the sharp deterioration of the economy take place precisely in 2008? The crisis began to give its first signals two years before it swept across the world. It all started with the fact that in the United States there was a problem with non-payment of mortgage loans. In this regard, there was a destabilization of the real estate market. There was a drop in the number of home sales. A year later, similar processes in the United States formed a whole crisis of high-risk mortgage loans. He has reached a serious level of development. This manifested itself in the occurrence of problems even for reliable borrowers. Such destructive processes were transformed into the 2008 financial crisis in the United States.
Growth in scope
But for a very short time the crisis was within the boundaries of this state. The crisis phenomena quickly spread throughout the world. It came as a shock to many that even major players in the banking sector were forced to declare bankruptcy. From such an end, some financial institutions rescued national governments. Over the next two years, there was a decrease in quotations on the stock markets. Many companies, evaluating the placement of their securities, understood that capital raising would not always be possible. These processes clearly characterize the world economy in 2008.
The crisis also affected the manufacturing sector. In this sector, it manifested itself in a decrease in production volumes, a decrease in demand for goods and raw materials. This, of course, led to a drop in the demand for labor resources. Due to the crisis, many people lost their job to lay off.
Overproduction of the dollar
Some experts single out one main reason for the economic destabilization of 2008. The crisis, in their opinion, was formed as a result of the overproduction of the US dollar. The situation has grown to enormous proportions because the dollar is the world's currency. Until the seventy-first year of the twentieth century, the dollar was backed by the gold reserves of the United States. After this connection between the currency and the precious metal ceased to exist, the dollar ceased to be printed in unlimited quantities.
The reason for the massive nature of the crisis is also in the fact that the purchasing power of the national American currency is provided not only by the gross domestic product of the United States itself, but also by a similar indicator of other states. But even if the financial sector of a power is directly dependent on the dollar, the country has no influence on the volume of currency emission. Even the US government itself has no control over this process. The only entity that has this right is the US Federal Reserve. This organization is also called the Central Bank of the United States. It is a collection of twenty private banks. They are united by one area of activity, which is printing dollars. After the connection between currency and gold was interrupted, there was an increase in the volume of the mass of world money. It exceeded the volume of the actual commodity mass in the world many times. This situation was a good plus for two subjects - the heads of the structural elements of the US Federal Reserve System and the states themselves.
A huge amount of finance was spent on issuing loans at reduced requirements for borrowers. Typically, the purpose of these loans was to purchase real estate. Such an offer was very attractive to people, as it provided a lot of opportunities with a minimum wage. The only obligation was to work to pay off, and the loan term stretched for thirty years. It was possible to pay for such a program only through the unsecured emission of the dollar. The United States Central Bank had anticipated that not all funds would be returned. It can be concluded that the government deliberately carried out this process, knowing that at some point the dollar would collapse. That is, the overproduction of the world currency is one of the reasons that the global crisis of 2008 was formed.
Unsecured mortgage
In many ways, the reasons for the 2008 crisis are due to the fact that there was an explosion in the field of unsecured mortgages. In part, the bankers played on the feelings and nature of people. Everyone strives to have a roof over their heads, for some it is even a cherished dream. However, not everyone is so responsible - individuals are driven by a desire for profit and easy money.
Accordingly, in the period from 2001 to 2005, the demand in the real estate market grew. Housing prices have gradually increased. This led to the fact that people began to fear further growth in value. Many understood that they needed to take advantage of the moment before it was too late. This situation has led to the capitalization of money. This phenomenon contributed to the fact that a new proposal appeared in the banking sector. Financial institutions began to offer loans to residents of the United States, which were called subprime. Their Russian translation fully reflects the essence. It is the word “unreliability” that can be used to describe such a program. During that period, many organizations appeared that lured people with such loans without obligations. Financial institutions believed that if their client did not fulfill their obligations, then sanctions could be applied to him. The bank thought that in any case it would remain with its property by taking away and selling the apartments of the debtors.
Reduced requirements for borrowers
For many, 2008 became the turning point. The crisis was largely due to the mortgage collapse. It was caused by the so-called subprime loans. They were distinguished by their loyal customer requirements. This influenced the following events:
- Growth in high-risk mortgage loans. Before the introduction of this program, it barely reached the level of eight percent. In the two years since the appearance of “unreliable” loans, the number has tripled.
- In the United States, more than one hundred and twenty percent loan coverage was considered the norm. At the same time, for example, for the Russian Federation, this indicator was kept at the level of eighty percent. In comparison, we can say that the unprofitableness of this program for a financial organization is known. The bank will not be able to recover its finances, especially in the event of inflationary processes.
- Loyal requirements for borrowers were expressed in the possibility of a lack of credit history.
- During the crisis, the total number of such loans was a quarter of the total. In some regions, this figure reached forty percent.
- Financial institutions were so passionate about the implementation of such programs that the competition in this line was incredible. It even exceeded the competition for classical types of loans.
- The most popular type of such a loan was loans, the hallmark of which was a floating rate. Its value was influenced by the LIBOR value. In due time, the client had to return the borrowed funds in the form of interest to the financial institution.
- A situation was formed that was characterized by the receipt of such loans for housing by individuals with the aim of further resale of real estate. These people were not even going to return the loan funds.
Destabilizing the currency
In addition to the above-mentioned main reasons for the formation of the global economic crisis, there are also accompanying factors. They had a catalytic effect, that is, they further exacerbated the existing situation. One of these processes was irregularities and inconsistencies in international trade and capital flows.
The instability of the American currency also played a role in the emergence of the crisis. The persistent opinion about the indispensability of the dollar was refuted. Since in the pre-crisis period there was a devaluation of world money, in some countries there were attempts to switch to other currencies. The withdrawal from the influence of the dollar led to a deterioration in the situation of certain sectors of the financial sector of the United States.
Rising raw material prices
A separate point is the increase in prices for raw materials during the crisis. This was especially true of the energy industry, in particular oil. This is due to inflationary processes caused by credit expansion.
The second reason for the rise in commodity prices was a manipulative financial mechanism. It represented investments by banks not in real sectors of the economy, but commodity exchanges. Investment funds, thanks to their huge borrowed funds, were able to influence prices.
Cyclic processes
Also, the 2008 financial crisis was caused by cyclical processes of economic development. As in the previous case, this phenomenon was caused by credit expansion. This concept is characterized by the possibility of issuing funds from accounts on demand as a loan. This violates the rules of law that enshrine the impossibility of using things in storage. Development was always carried out according to the same scheme. Credit expansion started, then it reached its peak and finally collapsed.
Crisis phenomena in the Russian Federation
The 2008 crisis in Russia was marked not only by external factors, but also by internal factors. The destabilization of oil and metals prices dealt a special blow to the Russian economy. The overall liquidity of the country's money supply fell sharply, which also affected the general state of finances in the country.
The signal of the impending crisis was the emptying of bank vaults. Financial institutions began to give loans to people, while they themselves borrowed funds from foreign partners. In addition, the supply has become much lower than the demand for credit. However, soon the implementation of this scheme was also suspended due to the fact that the crisis also affected foreign countries. The secondary reason was the fall in stocks.
Consequences of the crisis in Russia
The consequences of the 2008 crisis manifested themselves in the complete collapse of the state's banking system. This is clearly shown by the fact that financial institutions have stopped providing lending services. All this had a detrimental effect on the quality and standard of living of the population. The problem will not be solved until the phenomenon of the liquidity of the national currency disappears.
One of the reasons for the crisis, which the country itself aggravated, was the decision of the Central Bank of Russia to increase the interest rate. This immediately had a dramatic negative impact on production volumes. Many businesses were forced to simply close down and declare bankruptcy.
The collapse of the stock exchange did not significantly affect the financial position of the country. This is due to the fact that the Russian sectors of the economy have practically no connections with the stock market.
The aftermath of the Great Recession
The way out of the 2008 crisis influenced the formation of a new way of the world economy. The economy has become more orderly and even. On the plus side, the value of labor in industrialized countries has increased, and, accordingly, monetary rewards too. The economic recovery was noted in developing countries. They got a unique opportunity to compete with other major players on the world stage. After the 2008 crisis, it was especially easy for those states that did not depend on stock exchanges and the exchange rate of the world currency. During this period, they directed all their efforts to the development of internal potential.
The rise of the industrial sector began to be observed. The governments of many states have revised directions of activity and priorities in domestic and foreign policy. Now the economy began to be treated more responsibly, new approaches were applied. Since the financial sphere of some powers found itself without material support from outside, the authorities were forced to mobilize their own domestic resources. For many states, such a financial extreme situation only gave an impetus for further development, since the authorities had to invest budget funds in domestic industries, which, of course, was only beneficial in the long run. The result of such situations was an improvement in the quality of life of the population and the independence of the economy.
