The coronavirus outbreak triggered the next economic recession, today BTCMEX goes back to track the events of financial crisis of 2008-2010. What caused the economic recession? Was the lesson learned?
Throwback Thursday by BTCMEX
From late 2007 to 2009 the economy of the US suffered a drastic downturn that is known as the Great Recession. It was the worst financial crisis in the US since the Great Depression of 1929 and left its impact on the whole world.
Experts say that the climate for the recession was predetermined by the failures in the US financial regulatory system, which lead to excessive borrowings and the mortgage crisis which started in 2006. A mortgage is a loan designed to buy a house upfront. Many banks wouldn’t give loans to people with bad credit. In the early 2000s the real estate market was flourishing, so banks began to give mortgages to people with even low credit ratings. In other words, lenders were giving money to people who were less likely to pay the credit back, and charging them with the high interest rate.
In 2007 the housing bubble burst. The demand went down and the real estate price dropped rapidly. Nobody was investing in it or able to sell houses anymore. Bank owned houses were worth less and financial institutions lost money. The housing market failed, banks collapsed and the great recession had officially begun.
Beginning in the US, the recession meant that people and businesses suffered devastating losses, spent less money further damaging the economy. In 2008 the US government had to step in and bail-out the banks increasing the national deficit. This was the year when Bitcoin was created as an alternative form of money.
People today are still affected by the crises of the Great Recession. The US financial system downturn has made a significant impact on the rest of the world. The traditional idea of globalization can’t eliminate sharing common risks. The global systemic shock has affected different economies, trade has greatly decreased. The economies were saved by the central banks’ injections and cutting interest rates.
Today the global economy is facing the dawn of the new global recession. It’s the time for the financial regulatory system to be tested again, but this time we see new players like blockchain tech users and DeFi in the game. Were the lessons learned? Read further about Federal Reserve's recent interest rates cut on BTCMEX.
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Please, note, that the article is a part of BTCMEX Blog, the views and opinions expressed here are the contributing author’s only, and do not necessarily represent the views of the company.
Julia Bulakh for BTCMEX