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Defining what Economic Crisis is

and effects
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For the definition, economic crisis can be described as an economic situation sudden
downturn brought on by a financial crisis in an economy of a country experiences. It
will most likely experience a falling GDP. Due to inflation or deflation, it will be bring
about that a drying up of liquidity and rising or falling prices.
In addition, it can be take the form in a recession or a depression and periods of low
or even economic growth or negative. This situation has shows that production levels
lower and will be influence unemployment of which one country increased.
Besides that, GDP can be affect the economic crisis, when GDP has show that
negative that is meaning GDP growth negative lasting two or more quarters. An
especially prolonged recession may be called a depression. While a long period of
slow but not necessarily negative growth is sometimes are called economic

In the 19th and early 20th centuries, many financial crisis were be related with
banking fright. Therefore have many recessions coincided with these panics. In
addition, other situations that often called financial crisis that are include stock
market crashes and the bursting of other financial bubbles, currency crisis, and
sovereign defaults.
Types of economic crisis
1. Banking crisis
2. Speculative bubbles and crashes
3. International financial crisis
4. Wider economic crisis

Economic crisis can be different to four parts that are banking crisis, speculative
bubbles and crashes, international financial crisis and wider economic crisis.
Banking crisis have show that when a bank suffers a sudden rush of withdrawals by
depositors, this is called a bank run. Banks have lend out most of the cash they
receive in deposits, but it is difficult to quickly pay back to all deposits if depositors
suddenly withdrawals their money from banks. When banks haven t ability to pay
backs money to depositors, so a run may leave the bank in bankruptcy. This situation
may cause depositors to lose their savings unless they are covered by deposit
insurance. A situation in which bank runs are generally is called a systemic banking
crisis or banking panic. A situation without widespread bank runs, but in which
banks are hesitating to lend. Due to they worry that they haven t strong and enough
funds available, is called a credit crunch. For this ways, the banks are become an
accelerator of a financial crisis.
Speculative bubbles is a financial asset to that a bubble when its price exceeds the
present value of the future income that would be received by owning it to maturity.
But if most market participants buy the assets primarily in hopes of selling it later at
a higher price, instead of buying it for the income it will generate, this could be to
show that a bubble s present. If there is a bubble, there is also a risk of a crash in
asset prices. So that, those bubbles are difficult to discover it s reliably.
International financial crisis describe a country that maintains a fixed exchange rate
is suddenly forced to devaluate its currency because of a speculative attack. This
situation is called a currency crisis or balance of payments crisis. Sovereign default
can defined by a country fails to pay back its sovereign debt. Government can make
decisions about devaluation and default; they are always perceived the involuntary
results of a change in investor feeling that leads them to a sudden stop in capital
inflows or a sudden increase in capital flight.
At the last part is showing that wider economic crisis. When the introduction, we
have discuss about GDP can be affect the economic crisis. Since these phenomena
affect much more than the financial system. Government are not usually considered
financial crisis per se. But still have some economists argued with that many
recessions have been caused in large part by financial crisis.
1.2 Concept of economic crisis
In September 2008, a crisis of historic proportions struck financial institutions in the
US and globally. A series of bank and insurance company bankrupt caused by

financial crisis that effectively halted global credit markets in 2008. This situation
needs required government intervention but that has never happened.
Economic crisis was happen in US and then impact on global. In US, Fannie Mae
(FNM) and Freddie Mac (FRE) were both taken over by the government. In 14th
September, Lehman Brothers announce through the media they bankruptcy because
they failing to find a buyer. Bank of America agreed to purchase two companies that
are Merrill Lynch (MER) and American International Group (AIG), due to saved by
an $85 billion capital injection by the federal government.
In fact, by September 17, 2008, US have more public corporations had filed for
bankruptcy than in all of 2007. These failures had been caused a crisis of confidence
that made bank reluctant to lend money themselves, or for that matter, to anyone.
Shortly after, on September 25th, J P Morgan Chase (JPM) agreed to purchase the
assets of Washington Mutual (WM). That is a biggest bank failure in history.
Economic crisis 2008 has roots in real estate and the subprime lending crisis. At
began 1990s, commercial and residential properties saw their values increase
precipitously in a real estate boom and it was increased uninterrupted for nearly a
decade. Housing prices increases in was meeting with a period of government
deregulation. This situation not only allowed unqualified buyers to take out
mortgages and it also helped to mix the lines between traditional investment banks
and mortgage lenders.

In addition, real estate loans were scatter throughout the financial system in the form
of CDOs and other complex derivatives in order to scatter risk. However, banks need
forced to acknowledge huge write downs and write offs on these products, when the
home values failed to rise and home owners failed to keep up with their payments.
These write downs found several institutions at the edge of insolvency with many
being forced to raise capital or go bankrupt.
The UK looks set to not only avoid a recession during 2008. In end of 2008,
manufacturing output of UK down to 7%. It has affected lots of parts of the country
including banks and investment firms. It has been the longest recession since the
war. But it seems likely to grow at a comfortable rate given the recession expectation

However, the UK economy was declining at an even quicker rate than originally
suspected. UK economy had to show that all sectors of their country to be agonize
over of many issued. For the example, with consumer confidence, the housing
market, employment and manufacturing either at the lowest point, or dropping
faster than ever previously recorded.
1.3 How to impact in UK and US during economic crisis
Economic crisis is present a crisis triggered by a liquidity shortfall in US banking
system, it caused by the overvaluation of assets in 2007. Besides that, it has result in
the collapse of large financial institutions and the bailout of banks by national
governments and it downturns in stock markets around the world.
Housing market has suffered in many areas. This situation had caused numerous
evictions, foreclosures and prolonged vacancies. Besides that, have many economists
considered that it can to be the worst financial crisis since the Great Depression of
the 1930s. It has been contributed to the failure of key businesses. It can be declines
in consumer wealth estimated in the trillions of U.S. dollars, governments have bring
out a large in amount financial commitments and a significant decline in economic
activity. It has been suggested in many causes, but experts still have assigned to
varying weight.
In 2006, US have peak the drop sharply of global housing bubble. This situation had
caused the values of securities tied to real estate pricing to fall suddenly thereafter; it
can be damage financial institutions globally. Credit availability declines and will be
damaged investor confidence had an influence on global stock markets where
securities suffered large losses during late 2008 and early 2009.
Before that, economies worldwide slowed during this period as credit tightened and
international trade declined. Government and central banks responded with
unprecedented and unrepeatable fiscal stimulus, monetary policy expansion, and
institutional bailouts.
In US, the financial crisis has been linked to care about and unsustainable lending
practices compounded by government intervention and the growing trend of
securitization of real estate mortgages in the United States. The US mortgage-backed
securities, which had risks that were hard to assess, were marketed around the world.
The US mortgage-backed securities, which had risks that were hard to calculate the
amount, were marketed around the world. The risky lending practices can be served

to reinforce when a more broad based credit boom fed a global speculative bubble in
real estate and equities. The dangerous financial situation was made more difficult by
a sharp increase in oil and food prices.
In 2007, US began the economic crisis had show that the emergence of subprime
loan losses. This situation had exposed other risky loans and over-inflated asset
prices. Continuously, on September 2008, Lehman Brothers fall and with loan losses
mounting. This had made a major panic broke out on the inter-bank loan market.
Due to shares and housing prices declined, it had caused many large and well
established investment and commercial banks in the United States suffered a huge
losses and even faced bankruptcy, resulting in massive public financial assistance.
For the UK, economy 2001 to 2007 has show that a double bubble in both housing
and the stock markets. Home prices can be peaked in the third quarter of 2007 and it
had long decline set in. UK bank Northern Rock unable to get wholesale funding and
forced to turn to the Bank of England as lender of last resort in September. It can be
a first run on a British Bank in generations. At the lastly, UK government forced to
nationalized the bank. But, Northern Rock did not mark the end of the UK
government s involvement in the financial sector.