Causes of a Recession

An awkward economic condition where a county's GDP (gross domestic product) is showing minus growth for for at least, often more than, two successive months is known as a recession.

The National Bureau of Economic Research states, a “recession is a substantial downturn in economic activity lasting more than just a couple of months”. An decline in the economy can last for several months or could last for years. If it is only temporary, lasting months, is called an ‘economic correction’, whereas a sustained recession lasting years can turn into a depression.

There are both complex as well as simple reasons why an economic recessions occurs. When an economic slowdown happens, there tends to be an over-production, supply surpasses demand for merchandise or services.

This pushes companies to raise prices and consumers become shy, not buying as much and are unsure about buying goods or services. Another example will be the psychological impact from September 11. Some economic experts suggest that recession may not only be created by events that have large or huge affect on the individuals because outcomes that hurt particular companies or industries can also create a recession.

After September 11, then president Bush didn't try to create a day of remembrance, or ask us to get behind his war, instead he, and his administration, had a policy of 'business-as-usual.' He asked us to continue our lives as if nothing has happened, to go shopping, because if we didn't do this, 'they' would have won and the government did the same. It ran the national debt up from about $6 trillion in 2001 to $10 trillion by 2008.

Overconsumption can also be an underlying cause – too much reliance on credit. When there is over expenditure, more than is needed, can cause a recession and financial impoverishment for families everywhere.

Government policies could be used to prevent a situation like this but failure to provide good economic policies can also lead to recession, as we saw with the Bush administration. There are also a number of mistakes which can be made in economic policies to bring on a recession. Some lead to an expansion, bubble, and collapse, deflation. Any economic system is always moving at an unsustainable pace and inflation is increasing.

Often the mistake made by policymakers is they fail to be observant enough to see the rising inflation and oncoming recession. Policymakers frequently regard the onset of a recession as just a period of slow economic growth which will correct itself. Failure to address this could lead to more economic catastrophes.

The collapsing of the housing market bubble in America and the unfolding credit crisis are some contributing components of the global downturn. Any number of things can be attempted to prevent this scenario from completely taking hold but the most difficult part is the recovery period from the impacts of this, or any, economic turmoil.

So, what caused our current recession? Too much spending, by both the consumer and the government – acquiring too much debt. Another cause, too much production when manufacturers are seeing dollars signs of profits to come which drives consumers away due to rising prices. And finally, the government. When it fails its people on keeping a watchful eye on the economy, it only helps to sink the ship and should go down with it.

Resources

The Return of Depression Economics and the Crisis of 2008

Recessions and Depressions: Understanding Business Cycles

Don't Get Caught with Your Skirt Down: A Practical Girl's Recession Guide

Subprime Meltdown: From U.S. Liquidity Crisis To Global Recession

150 Best Recession-Proof Jobs

Crash Proof: How to Profit From the Coming Economic Collapse (Lynn Sonberg Books)

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