This paper examines the notable changes in the economy between the 2000 and 2010. The economic events that took place between the year 2000 and 2007 in the United States and other countries across the world resulted in largest economic downturn commonly referred to as the Great Depression. The period of 2000-2007 was characterized low inflation, robust economic expansion, and falling unemployment. During this time, the United States and other countries encountered rapid increase in house prices. The banks were more aggressive and even engaged in risk lending. For example, in America, mortgage firms and banks loosened their criteria of offering loans. Many house owners secured large mortgages with limited checks on their capability to repay (Rosenberg, 2012).
In 2006, the house prices began to fall resulting in a rise in mortgage defaulters. It was during this time when banks realized that they had made an enormous loss through mortgage defaults. These banks encountered significant liquidity challenges and were struggling to meet the demands of the market. As a result, the financial institutions reduced loans and mortgages considerably making difficult for persons to secure money for investments. This global credit crisis led to great depression in 2007 characterized by high unemployment and negative or low economic growth (Koch, 2016).
The interesting event during this period was how the governments responded to curb the effects of the great recession. For instance, in the United States, the federal bank reduced the bank rate to almost zero and also gave banks emergency loans to prevent their collapse. The central bank of United Kingdom reduced the bank rate from 5% to 0.5% to improve liquidity. The great depression ended 2009 towards 2010 although its effects are still present in many countries all over the world today (Koch, 2016).
Koch, C. R. (2016). Bank Leverage and Regulatory Regimes: Evidence from the Great Depression and Great Recession. American Economic Review, 106(5) , 538-542.
Rosenberg, J. M. (2012). The concise encyclopedia of the great recession 2007-2012. Lanham, Md: Scarecrow Press.