Economic crisis of 2008

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The 2008 economic crisis which has stoked fears of stagflation, began in the United States in January 2008 when oil prices surpassed the price of $100 a barrel, compounded by the subprime mortgage crisis and housing bubble in the United States. While the financial crisis was limited to developed countries, the inflation crisis has affected nearly every country in the world due to a variety of sustainability issues. It has been argued that the 2008 economic crisis is the first global crisis to deal with environmental issues in addition to economic issues,^[1][2][3] and has affected European countries with the Euro Zone Growth Outlook for 2008 slashed.^[4][5][6]

Contents 1 Overview 2 Recession dispute 3 Causes 4 See also 5 References 6 External links

[edit] Overview

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The meltdown of the top Wall Street investment bank Bear Stearns (Global Insight, the world's largest economics organization) upped the chances of a worse-than-expected recession to 40% (up from 25% odds before the crash of Bear Stearns), and stubbornly persistent financial market turbulence signaled that the crisis will not be mild and brief.

Alan Greenspan, ex-Chairman of the Federal Reserve and Lyle Gramley, a former board member of the U. S. Federal Reserve, stated in the week of March 17, 2008, that the 2008 financial crisis in the United States is likely to be judged as the most wrenching since the end of World War II.

Martin Feldstein, the former head of the National Bureau of Economic Research, said in March 2008 he believes the country is now in a recession, and it could be a severe one. A number of private economists generally called for a mild recession that will end in the summer of 2008 when the economic stimulus checks going to 130 million households start getting spent. A chief economist at Standard & Poor's, said in March 2008 he has a worst-case-scenario in which the country could endure a double-dip recession in which the economy would briefly recover in the summer 2008. Under this scenario, the economy's total output, as measured by the gross domestic product, would drop by 2.2 percentage points, making it the third worst recession in the post World War II period. On the other hand Mark Zandi, chief economist at Moody's stated in March 2008, when policymakers will act in a concerted and aggressive way the financial markets stabilize in the next few months, then the economy will suffer, but it won't be a prolonged and severe recession. It takes many months before the National Bureau of Economic Research-committee, the unofficial arbiter of when recessions begin and end, makes its own ruling.^[7]

Nevertheless, the concerns regarding financial stability were superseded in May 2008 by a building energy crisis due to declining supplies of crude oil. This energy crisis has caused inflation (and possible stagflation) throughout the world. Effects have varied from a crisis in the airline industry and decreased disposable income in developed countries, to food riots and unrest in developing countries due to their reliance on mechanized agriculture.

April 2008 began with one of the worst periods in United States aviation history, with no fewer than four airlines (Aloha Airlines, Champion Air, ATA Airlines and Skybus Airlines) all ceasing operations in a period of a week. A fifth airline, Oasis Hong Kong Airlines ceased operations after the price of oil hit $110 on April 9, 2008, causing concern that the small airline crisis in the United States may spread worldwide. A sixth airline, Frontier Airlines filed for bankruptcy on April 11, 2008, and yet another small airline, Eos Airlines ceased operations on April 27, 2008. The collapse continued with an eighth airline Nationwide Airlines ceasing operations on April 29, 2008, as well due to the 'impossibility' of profitably operating the Boeing 737-200 when oil is over $133 a barrel. On May 9, 2008, a ninth airline, EuroManx announced that it was ceasing all operations, citing rising fuel prices and reduced passenger numbers as the reasons. With the exception of Oasis Hong Kong Airlines, Nationwide Airlines and EuroManx, the only other airlines outside of the United States that have ceased operations in 2008 have done so due to rebranding or safety violations. In the case of the airlines in the United States, high and unsustainable jet fuel prices are to blame, caused by record oil prices and a declining supply of oil. On May 30, Silverjet announced it was suspending operations and blamed this due to lack of funding and rocketing prices of Crude Oil.^[8] It is believed by many that the global airline industry can no longer be profitable once oil passes $100 a barrel and would collapse after a year of oil prices above $100 a barrel, causing potential global chaos. A 5% U.S. domestic capacity cut (since raised to around 15%) may be expanded to all airlines to save on fuel; although a slightly larger cut happened in the aftermath of 9/11 (20%), this is the first time since the 1970s that airline service has been cut to save on fuel for the United States. Other airlines such as Ryanair and Scandinavian Airlines System have followed suit. With regards to this and high food prices that are occurring, some are arguing that this is the first recession in history to be caused by environmental factors rather than economic, despite the housing market downturn.

[edit] Recession dispute

A recession is defined as negative economic growth at least two quarters in a row. According to numbers published by Bureau of Economic Analysis the GDP of the last two quarters was positive meaning the U.S. economy is not in a recession.^[9] However this estimate has been disputed by some analysts who argue that if numbers for inflation given by the Federal Reserve or Bureau of Labor Statistics are applied the GDP would have been negative for the past two quarters, making it a technical recession.^[10]

In a report dated May 9, 2008, the chief North American economist for investment bank Merrill Lynch wrote that, despite the 0.6% GDP growth reported for the first quarter of 2008, "it is still reasonable to believe that the recession started some time between September and January", on the grounds that NBER's four recession indicators all peaked during that period.^[11] On May 29, the Commerce Department revised first quarter economic growth upwards to 0.9%.^[12]

[edit] Causes

Numerous factors have been cited for the crisis including record oil prices^[13] and the historic weakness of the US dollar.^[14] Oil and gold hit historic highs while the US dollar sank to a historic low^[15] on Wednesday, February 27, 2008. (Gold prices broke the $1,000/ounce barrier on March 13, 2008.^[16]) Rising petroleum costs can also reverse globalization. ^[17]

Other factors including the subprime mortgage crisis^[18] and the stock market downturn have all helped push the US into an economic crisis. Subprime mortgage crisis has caused panic in financial markets and encouraged investors to take their money out of risky mortgage bonds and shaky equities and put it into commodities as "stores of value". Most of the recent increases in global food prices may have been the result of speculation and the collapse in the value of the US dollar.^[19][20]

[edit] See also

Subprime crisis impact timeline Savings and Loan crisis United States housing market correction Subprime lending Collateralized debt obligation subprime meltdown Bear Stearns subprime mortgage hedge fund crisis List of entities involved in 2007 finance crises January 2008 stock market downturn Stagflation

Oil price increases since 2003 World food price crisis Carrying capacity Peak oil Limits to Growth Olduvai theory

[edit] References

[edit] External links

• USA Bureau of Labor Statistics official government web site, most requested surveys page

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