Economics Questions

Re: The international scope of the great recession

EmperorNero — Sat, 29 Jan 2011 20:31:04 GMT

Esuric:
Yes but this doesn't explain why there were (and still are) housing bubbles all over the world.

Correct, I left that part out to make it simpler. He just asked why a local bust would go global. That bubbles are caused by artificially low interest rates is a different part of the story.

Re: The international scope of the great recession

Esuric — Sat, 29 Jan 2011 20:24:00 GMT

The quick answer would be that the crash of the housing bubble dragged the global economy down with it. When a large amount of loans go bust, as in the case of the housing bubble, the banks that made those loans loose a bunch of money. Now they are short on cash and stop borrowing money to other banks, then they become short on cash. That drives up interest rates and borrowers in a difficult financial situation, like the Greek government, suddenly can't get new loans to refinance their debt. And so they are in trouble.

Yes but this doesn't explain why there were (and still are) housing bubbles all over the world.

Re: The international scope of the great recession

EmperorNero — Sat, 29 Jan 2011 20:21:44 GMT

johnd1216:
If the US government caused the great recession, why did it go global?

Welcome. The quick answer would be that the crash of the housing bubble dragged the global economy down with it. When a large amount of loans go bust, as in the case of the housing bubble, the banks that made those loans loose a bunch of money. Now they are short on cash and stop borrowing money to other banks, then they become short on cash. That drives up interest rates and borrowers in a difficult financial situation, like the Greek government, suddenly can't get new loans to refinance their debt. And so they are in trouble.

Re: The international scope of the great recession

Esuric — Sat, 29 Jan 2011 19:45:04 GMT

It has to do with this current international monetary system which lacks certain mechanisms that prevent continuous expansion and/or dramatic contractions (across the board), and which yields major and continuous international distortions (continuous capital flight, exchange rate instability, and interest rate volatility). Additionally, the USD and the Federal Reserve System play an integral role within this monetary system; they are the key players, so to speak. The FED is essentially the central bank of central banks. But the U.S. is not solely responsible for this calamity.

The international scope of the great recession

johnd1216 — Sat, 29 Jan 2011 19:16:59 GMT

The commission investigating the causes of the housing bubble claims that because the ensueing economic meltdown was international, it was not caused by the US government.

If the US government caused the great recession, why did it go global? Thank you, John