Why is our economy in a downfall? Our current recession was formed from several catastrophic reasons including the war, internet enterprises, and interest rates. It has devastated our lives and slowed the rates of investments. Our government is trying to reassure Americans to spend their money with their proposals and plans.
Before the economy recession of 2001, in 1999, an economic boom in computer and software sales was caused by the “Year 2000” (Y2K) glitch. During 1960’s to 1980’s, the practice of using 2 digits for representing a year rather than using 4 digits was contradicting with the year 2000. By using 2 digits instead of 4, computers would save disk and memory space. Experts believe that the computer would interpret 00 as 1900 and would mess up programs functions. This made the whole finance industry panicked and the bug was a potential time bomb for computers. Therefore, companies created year 2000 operating systems and software. Scared of a computer breakdown, everyone started purchasing the computer products. Leading to an economy boom for the tech companies, the stock prices started to rapidly increase while their production line enlarges. This led to enormous amounts of investors going to any kind of tech company whether they were profiting or not. As the millennium year 2000 came, computer orders declined. Customers had already bought all the software and hardware needed so the supply of computers filled the shelves of tech companies. Leading to a stock market sell-off in March 2000, the stock prices declined and many went bankrupt. In my opinion, I think that they should not have inputted 2 digits years in the first place. Sooner or later, the year 2000 would appear and it would have been obvious that computers would not interpret it accurately.
The “dot-com bubble” was also a cause to the economy recession in 1998-2001. The stock market increased rapidly with the NASQAQ peaking at 5132.52 on March 10, 2000. The rise of internet sites and tech industry was the main cause of the incredible increase of the stock market. The economy began losing speed when the Federal Reserve increased interest rates six times. The bubble burst after the high peak. Also, “Microsoft v. United States” case was being heard in federal court about abusive control power over Intel-based personal computers in operating system sales and web browser sales. This was mainly about the merging of Internet Explorer with Microsoft systems. The case discouraged many Microsoft investors. Another reason was the massive sell orders for the tech stocks that happened following the March 10 weekend. The dot-com bubble crash wiped out $5 trillion in market value of technology companies from March 2000 to October 2002. I personally believe that investors shouldn’t have sold all the stocks right after March 10 weekend because if there wasn’t a massive selling order, the bubble could have lasted longer and wouldn’t collapse as rapidly.
A main cause of recession of 2001 was high interest rates. Although the stock market decline in March 2000, the Federal Reserve continued increasing interest rates to a peak of 6.25% in May 2000. As a result, businesses loans and mortgages rates decreased. The Federal Reserve started lowering rates in January 2001 and rested at 1.75% eleven months later. Also a cause that resulted in our current economy was that the Federal Reserve did not raise interest when the economy was booming in 2004. This caused a housing bubble where investors took advantage of low rates to buy homes to just resell.
In 2006, when the rates were increased, housing prices declined. When the investors realized that they would lose money by selling the house for less than their mortgages, they foreclosed. An increasing foreclosure rate threatened many banks causing them to face enormous losses. By August 2007, many banks were afraid to lend each other money. This led to the $700 billion bailout to assist bankruptcies such as Bear Stearns, AIG, Fannie Mae, Freddie Mac, IndyMac Bank, and Washington Mutual. The Federal Reserve should not have increased the interest rates when the housing bubble was being magnified but could have raised it after the bubble calms down.
Also, the Iraq War proved to be an economic disaster. The government had spent over $522 billion on the war. With that amount, the government could have provided better Medicaid health insurance and better education. Also, that amount can provide every resident of the country with $1,800. Because of the war, over 1 million jobs were lost. The federal fiscal debt in 2007 was $244 billion. In May 2009, the US owed China $772 billion. In total, lenders from Japan and China held 44% of the foreign-owned debt. I think that the foreign ownership of the Treasury Securities is a potential and dangerous risk if the countries stop buying Treasury securities or sell them off greatly. The national debt equates to $30,400 per person of U.S. population or $60,100 per head of the U.S. working population, as of February 2008. Our debts are disastrous and proven that the next generation will have to pay off our current debts.
On Monday, February 23, 2009, Dow, S&P, and NASDAQ reached the lowest points in nearly 12 years of the stock market. The Dow Jones industrial lost 250 points, or 3.4%, ending at the lowest point since May 7, 1997. The S&P 500 index lost 26 points, or 3.5%, ending at the lowest point since April 11, 1997. The NASDAQ index lost 53 points, or 3.7%. Expects says that nobody is willing to buy stocks and it will continue going plunging until the economy recovers with assurance. I think that people are not willing to invest because of the high rates of unemployment and the declining values of the U.S. dollar.
Soon enough, employment plummeted and major companies fired thousands of employees. The unemployment rate soared to over 9.8 percent in September of 2009. The largest job losses were construction, retail, trade, and government. Therefore, borrowers were unable to pay back loans on homes, vehicles, businesses, and credit cards. Inflation of essential commodities caused people to spend their money more carefully and tightly. Prices of properties and stocks drastically decrease but nobody wanted to invest. As a result, America’s Gross Domestic Production plunges continuously in a downfall.
For the healing of our economy, we need to construct a strategy for the budget and for the investments in education, employment, health care, and businesses. “We will recover from this recession,” President Obama said. “But it will take time, it will take patience, and it will take an understanding that when we all work together; when each of us looks beyond our own short-term interests to the wider set of obligations we have to each other - that's when we succeed.”
