The Economic Crisis
The international economic crisis has been described, by the world economists, as the greatest and the most severe economic catastrophe since the great depression of 1930s. The shockers of the global economic crisis (or what economists refer to as world economic recession) caught the world by surprise from the onset of 2006 to date. This has led to the world being left to lay the blame of its predicaments on the failure of the world economists, saying that had it been well predicted, the catastrophe would have been adequately prevented or its immense effects mitigated to a greater extent. Although the economic crisis was initially seen as an issue of the United States of America, its effects have rapidly spilled over to the rest of the world. In fact, the effects of the crisis are now being felt in almost all parts of the globe, what economists call the economic crisis spill over.
The crisis, which started as a mere financial crisis in the United States of America, has since degenerated into a global phenomenon. Its effects have been immense and equally catastrophic as characterized by massive economic recession that has contributed to worrying deterioration of world business environment, a sharp downturn in the world’s consumer wealth, increase in the overall government spending and financial commitment in economic bailout attempts – which were rather unprecedented. In addition, increasing rates of unemployment as well as alarming decline in the world’s economic activities are clear manifestation of the economic turmoil. The causes of the economic crisis are however diverse (Floyd, 2008:2). This paper therefore discusses the world economic crisis, its causes and outcomes and compares and contrasts its effects both in the developed and less developed/ developing countries.
The world economic crisis roots can be traced to the financial crisis in the United States of America in 2005-2006, a phenomenon that was initially triggered by the bursting of the United States housing bubbles. The crisis started early 2001 but reached its peak late 2005 and early 2006. The increases in the Adjustable Mortgage Rates followed soon after and resulted in increased inflation in the housing sector. The low lending rates and prospects of increase in housing prices made borrowers to accept challenging mortgages assuming that they would be in a position to refinance them at favorable terms. However, the interest rates unexpectedly continued to rise and housing rates continued to drop. This made refinancing of debts and servicing of mortgages a challenging affair, causing increase in foreclosure and default. It also caused increase in adjustable lending rate and decline in housing prices culminating to sub prime lending crisis.
Since the busting of housing bubbles, one thing led to another culminating to a harsh financial crisis in the United States. Its spill over effects on other parts of the world has been equally severe or even more intense.
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