Economic crisis of 2008

Economic crisis of 2008

In 2008, the possibility of an economic crisis was suggested by several important indicators of economic downturn worldwide. These included high oil prices, which led to both high food prices (due to a dependence of food production on petroleum, as well as using food as an alternative to petroleum) and global inflation; a substantial credit crisis leading to the bankruptcy of several large and well established investment banks; increased unemployment; and the possibility of a global recession.

High commodity prices

The decade of the 2000s saw a commodities boom, in which the prices of primary commodities rose again after the Great Commodities Depression of 1980-2000. But in 2008, the prices of many commodities, notably oil and food, rose so high as to cause genuine economic damage, threatening stagflation and a reversal of globalisation. []

In January 2008, oil prices surpassed $100 a barrel for the first time, the first of many price milestones to be passed in the course of the year. [cite web|url=|title= Crude oil prices set record high 102.08 dollars per barrel] By July the price of oil reached as high as $147 a barrel although prices fell soon after.

The food and fuel crises were both discussed at the 34th G8 summit in July. [cite web|url=,2144,3466618,00.html|title= Africa's Plight Dominates First Day of G8 Summit]

Sulfuric acid (an important chemical commodity used in processes such as steel processing, copper production and bioethanol production) increased in price 6-fold in less than 1 year whilst producers of sodium hydroxide have declared force majeur due to flooding, precipitating similarly steep price increases.Fact|date=July 2008

Crisis in the U.S.

The United States entered 2008 during a housing market correction, a subprime mortgage crisis and a declining dollar value. [cite web|url=|title=dollar hits record low against euro, oil prices rally] In February, 63,000 jobs were lost, a 5-year record. [Aversa, Jeannine, [ "Employers Slash 63,000 Jobs in February] , Most in 5 years, Feeding Recession Fears,", Associated Press, March 7, 2008. Accessed July 11, 2008.] In September, 159,000 jobs were lost, bringing the monthly average to 84,000 per month from January to September of 2008. [CJJ Staff, [ "Massive Job Cuts Across the Country"] , accessed October 6, 2008]

See more detailed US federal discount rate chart: []

Possible recession

In the early months of 2008, many observers believed that a U.S. recession had begun. [cite web|url=|title=Recession in the US 'has arrived'] [cite web|url=|title= US recession is already here, warns Merrill] [cite web|url=|title=Poll: Majority of people believe recession underway] As a direct result of the collapse of Bear Stearns, Global Insight increased the probability of a worse-than-expected recession to 40% (from 25% before the collapse). In addition, financial market turbulence signaled that the crisis will not be mild and brief.

Alan Greenspan, ex-Chairman of the Federal Reserve, stated in March 2008 that the 2008 financial crisis in the United States is likely to be judged as the harshest since the end of World War II.cite news |first=Alan |last=Greenspan |title=We will never have a perfect model of risk |url= |work= |publisher=Financial Times |accessdate=2008-09-22 ] A chief economist at Standard & Poor's, said in March 2008 he has a worst-case-scenario in which the country could endure a double-dip recession in which the economy would briefly recover in the summer 2008.Fact|date=September 2008 Under this scenario, the economy's total output, as measured by the gross domestic product, would drop by 2.2 percentage points, making it the third worst recession in the post World War II period.Fact|date=October 2008

The former head of the National Bureau of Economic Research said in March 2008 he believed the country was then in a recession, and it could be a severe one.Fact|date=September 2008 A number of private economists generally predicted a mild recession ending in the summer of 2008 when the economic stimulus checks going to 130 million households started being spent. A chief economist at Moody's predicted in March 2008 that policymakers would act in a concerted and aggressive way to stabilize the financial markets, and that then the economy would suffer but not enter a prolonged and severe recession.Fact|date=September 2008 It takes many months before the National Bureau of Economic Research-committee, the unofficial arbiter of when recessions begin and end, makes its own ruling. [CNN, March 21, 2008 [ Worries grow of deeper U.S. recession] . Accessed March 22, 2008.]

According to numbers published by Bureau of Economic Analysis in May 2008, the GDP growth of the previous two quarters was positive. As one common definition of a recession is negative economic growth for at least two consecutive fiscal quarters, some analysts suggest this indicates that the U.S. economy was not in a recession at the time. [cite news
title=Technically, No Recession (Feel Better?)
] However this estimate has been disputed by some analysts who argue that if inflation is taken into account, the GDP growth was negative for the past two quarters, making it a technical recession. [cite news
title=US in Recession Despite Manipulated Employment and Inflation Statistics
publisher=The Market Oracle
] In a May 9, 2008, report, the chief North American economist for investment bank Merrill Lynch wrote that despite the GDP growth reported for the first quarter of 2008, "it is still reasonable to believe that the recession started some time between September and January", on the grounds that the National Bureau of Economic Research's four recession indicators all peaked during that period. [cite news
title=Rosenberg: Debunking Five Myths|publisher=Mish's Global Economic Trend Analysis

New York's budget director concluded the state of New York was officially in a recession. Governor David Paterson called an emergency economic session of the state legislature for August 19 to push a budget cut of $600 million on top of a hiring freeze and a 7 percent reduction in spending at state agencies already implemented by the Governor. [cite news|url=|title=New York economy officially in recession, state budget director says|publisher=The Business Review|date=2008-07-30|accessdate=2008-08-10] An August 1 report, issued by economists with Wachovia, said Florida was officially in a recession. [cite news|url=|title=Wachovia economists say Florida is in recession|publisher=Business Week|date=2008-08-01|accessdate=2008-08-10]

White House budget director Jim Nussle said the U.S. avoided a recession following revised GDP numbers from the Commerce Department showing a 0.2 percent contraction in the fourth quarter of 2007 down from a 0.6 percent increase and a downward revision to 0.9 percent from 1 percent in the first quarter of 2008. The GDP for the second quarter was placed at 1.9 percent below an expected 2 percent. [cite news|url=|title=White House says U.S. avoided recession|publisher=Market Watch|date=2008-07-31|accessdate=2008-08-10] Martin Feldstein, who headed the National Bureau of Economic Research until June and serves on the group's recession-dating panel, said he believed the U.S. was in a very long recession and that there was nothing the Federal Reserve could do to change it. [cite news|url=|title=U.S. May Be in `Very Long' Recession, Harvard's Feldstein Says|publisher=Bloomberg|date=2008-07-31|accessdate=2008-08-10]

In a CNBC interview at the end of July 2008 Alan Greenspan said he believed the U.S. was not yet in a recession, but that it could enter one due to a global economic slowdown. [cite news|url=|title=Global slowdown may put U.S. in recession: Greenspan|publisher=Reuters|date=2008-07-31|accessdate=2008-08-10]

A study released by Moody's found two-thirds of the 381 largest metropolitan areas in the United States were in a recession. The study also said 28 states were in recession with 16 at risk. The findings were based on unemployment figures and industrial production data. [cite news|url=|title=Report finds Honolulu in recession, Hawaii at risk|publisher=Pacific Business News|last=Petrello|first=Randi|date=2008-10-06|accessdate=2008-10-07]

Rise in unemployment

On September 5, 2008, the United States Department of Labor issued a report that its unemployment rate rose to 6.1%, the highest in five years. [ [ Graphs and Chart on Unemployment Rate from the Bureau of Labor Statistics government website] . Accessed September 5, 2008.] cite news|url=|title=Unemployment Rate Rises to 6.1%|author=Michael Grynbaum|publisher=New York Times|date=2008-09-05|accessdate=2008-09-05] The news report cited the Department of Labor reports and interviewed Jared Bernstein, an economist:quote|The unemployment rate jumped to 6.1 percent in August, its highest level in five years, as the erosion of the job market accelerated over the summer. Employers cut 84,000 jobs last month, more than economists had expected, and the Labor Department said that more jobs were lost in June and July than previously thought. So far, 605,000 jobs have disappeared since January. The unemployment rate, which rose from 5.7 percent in July, is now at its highest level since September 2003. Jared Bernstein, economist at the Economics Policy Institute in Washington, said eight months of consecutive job losses had historically signaled that the economy was in a recession. "If anyone is still scratching their head over that one, they can stop," Mr. Bernstein said. Stocks fell after the release of the report, with the Dow Jones industrials down about 100 points after about 40 minutes of trading.|"New York Times" CNN also reported the news,>cite news|url=|title=Jobless rate soars to 6.1%: Unemployment surges to 5-year high as employers cut workers for eighth straight month. Total job losses for 2008: 605,000.
author=Chris Isidore|publisher=CNN at|date=2008-09-05|accessdate=2008-09-05
] quoted another economist, and placed the news in context:

Liquidity crisis

In early July, depositors at the Los Angeles offices of IndyMac Bank frantically lined up in the street to withdraw their money. On July 11, IndyMac - the largest mortgage lender in the US - was seized by federal regulators. The mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures. That day the financial markets plunged as investors tried to gauge whether the government would attempt to save mortgage lenders Fannie Mae and Freddie Mac. The two were placed into conservatorship on September 7, 2008.

During the weekend of September 13–14, Lehman Brothers declared bankruptcy after failing to find a buyer, Bank of America agreed to purchase Merrill Lynch, the insurance company AIG sought a bridge loan from the Federal Reserve, and a consortium of 10 banks created an emergency fund of at least $70 billion to deal with the effects of Lehman's closure, [cite web|url=|title=After Frantic Day, Wall St. Banks Falter] similar to the consortium put forth by J.P. Morgan during the stock market panic of 1907 and the crash of 1929.Fact|date=October 2008 Stocks on "Wall Street" tumbled on September 15. [Tim Paradis, "Stocks tumble amid new Wall Street landscape," AP, found at [ Yahoo News] . Retrieved September 15, 2008.]

On September 16, news emerged that the Federal Reserve may give AIG an $85 billion (£48 billion) rescue package, on September 17, 2008, this was confirmed. The terms of the rescue package were that the Federal Reserve would receive an 80% public stake in the firm. The biggest bank failure in history occurred on September 25 when JP Morgan Chase agreed to purchase the banking assets of Washington Mutual. [cite web|url= |title=JPMorgan to buy WaMu - Sep. 25, 2008 | |date= |accessdate=2008-10-01]

The year 2008 as of September 17 has seen 81 public corporations file for bankruptcy in the United States, already higher than the 78 in 2007. Lehman Brothers being the largest bankruptcy in U.S. history also makes 2008 a record year in terms of assets with Lehman's $691 billion in assets all past annual totals. [cite news|url={F8BAF304-AD8A-42F3-B0B7-1E3905DEC2EA}&dist=hppr|title=2007 Public Company Bankruptcies Surpassed, According to|publisher=Market Watch|date=2008-09-17|accessdate=2008-09-19] The year also saw the ninth biggest bankruptcy with the failure of IndyMac Bank. [cite news|url=,28804,1841334_1841431_1841342,00.html|title=Top 10 Bankruptcies|publisher=Time|date=2008-09-15|accessdate=2008-09-19]

On September 29, Citigroup beat out Wells Fargo to acquire the ailing Wachovia's assets will pay $1 a share, or about $2.2 billion. In addition, the FDIC said that the agency would absorb the company's losses above $42 billion; in exchange they would receive $12 billion in preferred stock and warrants from Citigroup in return for assuming that risk. [cite web|url= |title=Citigroup Buys Bank Operations of Wachovia - | |author=Eric Dash And Andrew Ross Sorkin |date=Published: September 29, 2008 |accessdate=2008-10-01] [ [] Dead link|date=October 2008]

Bailout of U.S. financial system

On September 19, short selling on 799 financial stocks was banned. Companies were also forced to disclose large short positions. [ A Hail Mary Pass, but No Receiver in the End Zone] , by Joe Nocera, 9/19/2008,] Paulson also indicated that money market funds will create an insurance pool to cover themselves against losses and that the government will buy mortgage-backed securities from banks and investment houses. Initial estimates of the cost of the Treasury bailout proposed by the Bush Administration's draft legislation (as of September 19, 2008) were in the range of $700 billion [ [ "U.S. Treasury proposes $700 billion Wall Street bailout plan"] , Reuters, Sat Sep 20, 2008] to $1 trillion U.S. dollars. [cite web|url= |title=Paulson plan could cost $1 trillion - Mike Allen - | |date= |accessdate=2008-10-01] President George W. Bush asked Congress on September 20 2008 for the authority to spend as much as $700 billion to purchase troubled mortgage assets and contain the financial crisis. The crisis continued when the United States House of Representatives rejected the bill, having Dow Jones take a 777 point plunge. The bill was eventually passed by the Senate and the House but the stock market continued to fall nevertheless. [Sahadi, Jeanne, [ "Bush wants OK to spend $700B Bailout proposal sent to Congress seeks authorization to spend as much as $700 billion to buy troubled mortgage-related assets"] , CNN Money, September 21, 2008] [ [ The doctors' bill] . The Economist. September 25th 2008. Retrieved on 2008-09-25.]

Crisis in Europe

Denmark was confirmed to be in a recession after quarterly results for 2008 showed a contraction of 0.6 percent in the first quarter following a contraction of 0.2 percent in the fourth quarter of 2007. [cite news|url=|title=Early Easter puts Danish economy in recession|publisher=Financial Times|date=2008-07-17|accessdate=2008-07-19] Estonia similarly saw an economic contraction of 0.9 percent in the second quarter, following a 0.5 percent contraction in the first quarter, putting it in a recession. [cite news|url=|title=Estonia becomes first victim of Baltic recession|publisher=Financial Times|date=2008-08-14|accessdate=2008-08-17] Latvia officially entered a recession after gross domestic product fell 0.2 percent in the second quarter following a fall of 0.3 percent in first quarter GDP. [cite news|url=|title=Latvia joins Estonia in recession|publisher=The Guardian|date=2008-09-08|accessdate=2008-09-10] Sweden's economy showed zero growth in the second quarter of 2008. [cite news|url=|title=Sweden heading for recession|publisher=Stockholm News|date=2008-08-06|accessdate=2008-08-17] The entire economy of the European Union declined by 0.1 percent in the second quarter. [cite news|url=|title=Eurozone GDP fell 0.2% in the second quarter of 2008: EU27 GDP fell 0.1%; Economies of Eurozone's Big 4 - Germany, France, Italy and Spain all shrank|publisher=Finfacts Ireland|date=2008-08-14|accessdate=2008-08-17] A European Commission forecast predicted Germany, Spain and the UK would all enter a recession by the end of the year while France and Italy would have flat growth in the third quarter following second quarter contractions. [cite news|url=|title=Recession to hit Germany, UK and Spain|publisher=Financial Times|date=2008-09-10|accessdate=2008-09-11]

Chairwoman of the Association of Estonian Food Industry, Sirje Potisepp, warned the Estonian food industry would probably face bankruptcies citing two major beverage companies in Estonia filing for bankruptcy. [cite news|url=|title=Estonian food industry to face bankruptcies-chairwoman|publisher=Baltic Business News|date=2008-09-19|accessdate=2008-09-19] Ratings agency Fitch warned Ukraine could be headed for a currency crisis as economic fundamentals deteriorate and the country enters another period of political uncertainty. Fitch said the current account deficit was likely to widen further as prices of gas imports rise and prices of its steel exports fall and said Ukraine was likely to need to borrow more at a time when global debt markets have ground to a virtual standstill. Ukraine's central bank chief, Petro Poroshenko, said he saw no need to intervene to protect the currency. [cite news|url=|title=Fitch cuts Ukraine outlook on risk of currency crisis|publisher=The Guardian|date=2008-09-25|accessdate=2008-09-26]

Crisis in Iceland

The Icelandic króna has declined 40% against the euro during 2008 and has experienced inflation of 14%.cite news|url=|title=Iceland Risks Bankruptcy, Leader Says|publisher=The Wall Street Journal|last=Forelle|first=Charles|date=2008-10-07|accessdate=2008-10-07] Iceland's interest rates have been raised to 15.5% to deal with the high inflation and the króna's decline is reportedly only beaten by that of the Zimbabwean dollar. [cite news|url=|title=Financial crisis: Iceland's dreams go up in smoke|publisher=The Daily Telegraph|last=Pierce|first=Andrew|date=2008-10-06|accessdate=2008-10-07] This depreciation in currency value has put pressure on banks in Iceland, which are largely dependent on foreign debt. On September 29, 2008 Iceland's Glitnir was effectively nationalized after the Icelandic government acquired 75% of the bank's stock. According to the government the bank "would have ceased to exist" within a few weeks if there had not been intervention. [cite news|url=|title=Iceland nationalises Glitnir bank |publisher=BBC News|date=2008-09-29|accessdate=2008-10-07]

Iceland's Prime Minister Geir Haarde in a television address on October 6, 2008 said credit lines to Icelandic banks had been cut off and that "the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could be national bankruptcy" and that the government was looking to other countries for sources of liquidity. Iceland's parliament responded to the crisis by approving a bill giving the Government wideranging powers over the banks, including the ability to seize their assets, force them to merge or compel them to sell off their overseas subsidiaries. [cite news|url=|title=Terror as Iceland faces economic collapse|publisher=The Times|date=2008-10-07|accessdate=2008-10-07] The parliament went on to seize control and nationalize Iceland's second largest bank, Landsbanki, on October 8, 2008. [cite news|url=|title=Financial crisis: Iceland nationalises bank and seeks Russian loan|publisher=The Telegraph|date=2008-10-08|accessdate=2008-10-08] The Parliament also extended a £400m loan to the nation's largest bank, Kaupthing, in hopes that it would strengthen the institution's balance sheet. [cite news |url=|title=Financial crisis: Iceland nationalises bank and seeks Russian loan|publisher=The Telegraph|date=2008-10-08|accessdate=2008-10-08]

On 8th October UK Prime Minister Gordon Brown announced that the UK government would launch legal action against Iceland, whose government announced that they had no intention of compensating any of the estimated 300,000 UK savers after the nationalization of Landsbanki and its online brand, Icesave. [cite web |title=UK govt launching legal action against Iceland |publisher=Citywire |accessdate=2008-10-08 |url=] Chancellor of the Exchequer Alistair Darling announced that the UK government would foot the entire bill, estimated at £4bn, [cite web |title=Darling's pledge to Icesave savers |publisher=The Press Association |accessdate=2008-10-08 |url=] [cite web |title=Britain vows to to protect savers |publisher=Agence France-Presse |accessdate=2008-10-08 |url=,27753,24467268-31037,00.html] and that he was taking steps to freeze the assets of Landsbanki. [BBC news. [ Rescue plan for UK banks unveiled] . Retrieved 2008-10-08]

Crisis in the United Kingdom

The economy of the United Kingdom has also been hit by rising oil prices and the credit crisis. Sir Win Bischoff, chairman of Citigroup, said he believes that house prices in Britain will keep falling for another two years. The Ernst & Young Item club predicted growth of only 1.5 percent in 2008, slowing to 1 percent in 2009. They also predicted consumer spending would slow to only 0.2 percent, and forecast a two-year drop in investment. The Institute of Directors’ quarterly business opinion survey showed business optimism at its lowest level since the survey began in 1996. [cite news|url=|title=UK economy heads for ‘horror movie’|publisher=The Sunday Times|date=2008-07-20|accessdate=2008-07-20] Deputy Governor of the Bank of England, John Gieve said inflation would accelerate "well over" 4 percent while economic growth is "slowing fast." Bank of England Governor Mervyn King said there may be "an odd quarter or two of negative growth," following the first quarter of 2009. Gieve said he couldn't rule out the U.K. economy heading into a recession, adding the economy was "quite a long way" from the end of the slowdown. [cite news|url=|title=Gieve Sees U.K. Inflation Accelerating `Well Over' 4%|publisher=Bloomberg|date=2008-07-18|accessdate=2008-07-19]

Nationwide, the UK's biggest building society, warned the UK could head into a recession after house prices in July fell 8.1 percent from the previous year. Housing prices declined by 1.7 percent in July, double the decline recorded in June. Standard & Poor's said on July 30, 2008 that 70,000 homeowners were in negative equity and it could rise to 1.7 million or about one in six homeowners in the UK based on an expected 17 percent decline into 2009. The Bank of England reported that mortgage approvals fell by a record of nearly 70 percent. [cite news|url=|title=Nationwide warns of recession as house price drop doubles|publisher=The Times|date=2008-07-31|accessdate=2008-08-11] In Northern Ireland, house sales saw a fall of some 50 per cent according to a survey by the University of Ulster/Bank of Ireland and housing prices fell on average by 4 percent. [cite news|url=|title=House sales in North decline by about half|publisher=Irish Times|date=2008-08-06|accessdate=2008-08-11] British manufacturing activity declined by the most in almost a decade in July, the third consecutive month of declines. The number of companies that went into administration in May–July was 938, an increase of 60 percent compared with the same period in 2007. The number of company liquidations in the second quarter rose to 3,689, a 16 percent increase and the highest quarterly figure in five years. House builders expect the number of houses built in 2008 in England and Wales to be the lowest since 1924. The declines are seen as an indication the United Kingdom has high chance of entering a recession. [cite news|url=|title=UK economic data points to recession|publisher=International Herald Tribune|date=2008-08-01|accessdate=2008-08-11] Factory production in the UK dropped 0.5 percent in June when twelve out of 13 categories of factory production fell. The economic output of the UK was reported to have increased by just 0.2 percent in the second quarter, the joint-slowest pace since 2001. [cite news|url=|title=U.K. Services Contract, Factory Production Drops|publisher=Bloomberg|date=2008-08-05|accessdate=2008-08-11] The Office for National Statistics later gave a revised number saying growth in the British economy was at zero, the worst since the second quarter of 1992.Fact|date=October 2008 The current slowdown has ended 16 years of continuous economic growth, the longest period of economic expansion in Britain since the 19th century. [cite news|url=|title=Recession fears are stoked as UK economy grinds to a halt|publisher=The Herald|date=2008-08-23|accessdate=2008-08-23] A report from the National Institute for Economic and Social Research said the economy contracted by 0.1 percent in the period from May to July and 0.2 percent from June to August. [cite news|url=|title=U.K. Economy Contracts, Edges Toward a Recession|publisher=Bloomberg|date=2008-09-10|accessdate=2008-09-11]

A voter backlash due to the personal financial effects of the global credit crunch was widely attributed by politicians of the United Kingdom Labour Party, which had been in power since 1997, as the reason their political fortunes took a dramatic downturn through May 2008, with a succession of defeats in by-elections and the London Mayoral election, and the worst opinion poll result in their history.Fact|date=October 2008 Political opponents countered this apparent excuse by pointing to the fact that the incumbent Prime Minister Gordon Brown, who had taken office in June 2007 just before the crisis broke, had been the country's 'Iron Chancellor', and had allegedly not ensured the country had sufficient monetary reserves to be able to lower taxes and ease the burden on voters, despite overseeing one of the longest sustained periods of economic growth in the country's history. In August 2008 the party also faced calls to impose a windfall tax on the utility companies, who were reaping record profits due to the fuel crisis, perceived as in bad taste given rising food and fuel prices.

On 17 September 2008, news emerged that the banking and insurance group HBOS (Halifax Bank of Scotland) was in merger talks with Lloyds TSB about creating a UK retail banking giant worth £30bn. The move received the backing of the British government which stated that it will over-rule any claims from the competition authorities.

According to the Office for National Statistics unemployment claims in August 2008 increased by 32,500 to reach 904,900. The wider Labour Force Survey measure found joblessness rose by 81,000 to 1.72 million between May and July, the largest increase since 1999. [cite news|url=|title=Sharp rise in unemployment claimants|last=Hopkins|first=Kathryn|publisher=The Guardian|date=2008-09-17|accessdate=2008-09-19]

In September, British bank Bradford & Bingley's £20billion savings business was acquired by Spanish bank Grupo Santander. While its retail deposit business along with its branch network will be sold to Santander. The mortgage book, personal loan book, headquarters, treasury assets and its wholesale liabilities will be taken into public ownership.

Crisis in the Eurozone

In the eurozone as a whole, industrial production fell 1.9 percent in May, the sharpest one-month decline for the region since the exchange rate crisis in 1992. European car sales fell 7.8 percent in May compared with a year earlier.cite news|url=|title= European recession looms as Spain crumbles|publisher=The Daily Telegraph|date=2008-07-18|accessdate=2008-07-19] Retail sales fell by 0.6 percent in June from the May level and by 3.1 percent from June in the previous year. Germany was the only country out of the four biggest economies in the eurozone to register an increase of activity in July though the increase was sharply down. Economic analysts from RBS and capital Economics say the decline raises the risk of the eurozone entering a recession in 2008. [cite news|url=|title=Eurozone business activity 'close to seven-year low'|publisher=Agence France-Presse|date=2008-08-06|accessdate=2008-08-11] In the second quarter, the eurozone's economy was reported to have declined by 0.2 percent.cite news|url=|title=Europe: Oil Falls, Stocks Rise|publisher=Forbes|date=2008-08-14|accessdate=2008-08-17]

Ireland in the first quarter of 2008 reported a contraction in GDP of 1.5 percent, its first economic contraction since it began reporting by quarter and first recorded contraction since 1983. [cite news|url=|title=Ireland's economy shrinks 1.5 percent|publisher=Associated Press via Forbes|date=2008-06-30|accessdate=2008-07-19] However, Ireland's Central Statistics Office reported growth in GNP of about 0.8 percent, Ireland's government considers GNP a better measure of the economy. Analysts have predicted Ireland's economy will contract further in the rest of the year. [cite news|url=|title=Ireland faces recession after Celtic Tiger era|publisher=Agence France-Presse|date=2008-06-30|accessdate=2008-07-19] A report from NCB Stockbrokers predicts gross national product will fall by 1 percent in 2008 and by 0.4 percent in 2009 due to a decline in multinationals hit by the global economic slowdown. An economist from NCB said non-residential investment would fall by 5 percent in 2008 and by 12 percent in 2009. [cite news|url=|title=Latest economic report predicts recession|publisher=RTE Business|date=2008-07-29|accessdate=2008-08-11] Ireland's GDP saw a contraction in the second quarter by 0.5 percent making Ireland the first member of the eurozone to enter a recession. [cite news|url=|title=Irish economy goes into recession|publisher=BBC News|date=2008-09-25|accessdate=2008-09-26]

Spain's Martinsa-Fadesa, a construction company, has declared bankruptcy as it failed to refinance a debt of 5.1 billion euros. The two banks with most exposure to Martinsa-Fadesa are reportedly Caja Madrid, at €900m, and Banco Popular, at €400m. Spain's finance minister Pedro Solbes has said it would not bail out the company. In the second quarter in Spain house prices reportedly fell 20 percent. [cite news|url=|title= Spain drops reassuring gloss as crisis deepens|publisher=The Daily Telegraph|date=2008-07-18|accessdate=2008-07-19] In Castilla-La Mancha some 69 percent of all houses built over the past three years are still unsold. Deutsche Bank said it expects a 35 percent fall in real house prices by 2011. Spain's premier, Jose Luis Zapatero, blamed the European Central Bank for making matters worse by raising interest rates. More than 98 percent of home loans in Spain are priced off floating rates linked to Euribor, which has risen 145 basis points since August. Housing accounts for over 10 percent of Spain's economy. The Bank of Spain is concerned about the health of smaller regional lenders with heavy exposure to the mortgage market.

Although Spain has avoided recession in the first half of 2008, unemployment in the country has risen by 425,000 over the past year, reaching 9.9 percent. Car sales in Spain fell 31 percent in May. Spain's factory output slumped 5.5 percent in May. The country's business lobby Circulo de Empresarios warned of a "high probability" that Spain's economy would fall into recession in the second half of 2008 due to the housing collapse.cite news|url=|title= Recession warnings ruffle Europe as Germany and Italy stall|publisher=The Daily Telegraph|date=2008-07-11|accessdate=2008-07-19] Spain had a 7.9 percent decline in retail sales in June compared to the previous year, the largest drop since Spain began registering the results and the seventh consecutive monthly decline. This included a 17.9 percent drop in retail sales of household goods. June food sales in Spain fell by 6.8 percent. [cite news|url=|title=Spanish retail sales suffer record fall|publisher=Reuters|date=2008-07-30|accessdate=2008-08-11] Morgan Stanley issued a major alert on the health of Spanish banks and the Spanish economy in a report, saying, "A momentous economic slowdown is now under way. We believe the deterioration in Spain is just in the beginning stages. The bulk of the pain will be suffered in 2009." Morgan Stanley also warned there was 40 percent chance of a 0.5 percent contraction of the Spanish economy in 2009, with a risk of an even more extreme 1.4 percent contraction in 2009. [cite news|url=|title=Morgan Stanley issues alert on Spanish banks|publisher=The Daily Telegraph|date=2008-08-04|accessdate=2008-08-11] According to Spanish automobile manufacturers' association ANFAC new car sales fell 27.5 percent in July from the same time in 2007, the third consecutive monthly drop of over 20 percent. Spain's government forecast the unemployment rate would rise to 10.4 percent in 2008 and to 12.5 percent in 2009. Spain's second largest bank predicted the unemployment rate could reach 14 percent in 2009. [cite news|url=|title=Spain facing worse economic slowdown than expected|publisher=Agence France-Presse|date=2008-08-09|accessdate=2008-08-11] Spain's Purchasing Managers Index for the manufacturing sector in July fell to a new low suggesting a deep recession. [cite news|url=|title=Euro zone factory activity at 5-yr low, prices rising|publisher=The Guardian|date=2008-08-01|accessdate=2008-08-11] In the second quarter Spain's economy grew by 0.1 percent, the lowest gain in 15 years.

In Germany officials are warning the economy could contract by as much as 1.5 percent in the second quarter because of declining export orders. Industrial output in both Italy and Greece has slumped 6.6 percent over the past year. Portugal is off 6.2 percent. Germany's industrial output was down 2.4 percent in May, the fastest rate for a decade. Orders have now fallen for six months in a row, the worst run since the early 1990s.Fact|date=October 2008 The German Chamber of Industry and Commerce warned of up to 200,000 job losses in coming months. German retails sales fell 1.4 percent in June more than any expectations. [cite news|url=|title=German June retail sales fall adds to economic gloom|publisher=The Guardian|date=2008-08-01|accessdate=2008-08-11] The German economy declined by 0.5 percent in the second quarter. In Italy, Fiat announced plant closures and temporary layoffs at factories in Turin, Melfi, Imola and Sicily. Car sales in Italy have fallen by almost 20 percent over each of the past two months. Metalmeccanici, Italy's car workers' union said, "The situation is evidently more serious than had been understood." On July 10, 2008 economic think tank ISAE lowered its growth forecast for Italy to 0.4 percent from 0.5 percent and cut the 2009 outlook to 0.7 percent from 1.2 percent. [cite news|url=|title=German finance ministry writes off Q2 GDP|publisher=The Guardian|date=2008-07-21|accessdate=2008-07-22] Analysts have predicted Italy had entered a recession in the second quarter or would enter one by the end of the year with business confidence at its lowest levels since the 9-11 terrorist attacks. [cite news|url=|title=Italy business morale hits 7-yr low, recession seen|publisher=The Guardian|date=2008-07-24|accessdate=2008-07-25] Italy's economy contracted by 0.3 percent in the second quarter of 2008. [cite news|url=|title=Italy's Economy Unexpectedly Shrinks; Nears Recession|publisher=Bloomberg|date=2008-08-08|accessdate=2008-08-11] In May industrial output fell in the Netherlands by 6 percent. [cite news|url=|title=The global economy is at the point of maximum danger|publisher=The Daily Telegraph|date=2008-07-21|accessdate=2008-07-22]

Other eurozone members saw a decline in their economy in the second quarter. The French economy declined by 0.3 percent, Finland's economy declined by 0.2%, and the Netherlands showed zero growth in the second quarter. According to INSEE, France's statistical agency, the French GDP was projected to decline by 0.1 percent in the third quarter of 2008 with another 0.1 percent decline in the fourth quarter and Eric Woerth, the French budget minister, said France was in a technical recession. [cite news|url=|title=France officially in recession|publisher=Financial Times|date=2008-10-04|accessdate=2008-10-07]

On September 28, Dutch-Belgian bank Fortis was partially nationalized with a cash infusion from the Benelux countries amounting to €11.2 billion. Fortis' troubles started in the beginning of the year with an announcement that it faced around $1.5 bn of losses in the American sub-prime catastrophe. In June, the company announced a selloff of assets to raise €5 bn to improve the liquidity of the organisation. This, however, proved insufficient. [cite web|url= |title=BBC NEWS Business Fortis is 'keystone' European bank | |author=Ben Shore |date=Page last updated at 06:48 GMT, Sunday, 28 September 2008 07:48 UK |accessdate=2008-10-01]

Crisis in other parts of the world

New Zealand Institute of Economic Research's quarterly survey showing New Zealand's economy contracted 0.3 percent in the first quarter and Treasury figures suggested the economy also contracted in the June quarter putting New Zealand in a technical recession. [cite news|url=|title=New Zealand considered to be in recession|publisher=Xinhua|date=2008-07-09|accessdate=2008-07-19] The Treasury says the economy could recover in the second half of the year under the impact of high dairy prices boosting farmer incomes and cuts to personal tax rates, which come into effect on Oct. 1. [cite news|url=|title=NZ Treasury: economy may be in recession already|publisher=Reuters|date=2008-07-07|accessdate=2008-07-19] About 23 financial companies in New Zealand have filed for bankruptcy in a year. Housing starts in New Zealand fell 20 percent in June, the lowest levels since 1986.cite news|url=|title= Australia faces worse crisis than America|publisher=The Daily Telegraph|date=2008-07-29|accessdate=2008-07-30] Excluding apartments, approvals dropped 13 percent from May. Approvals in the year ended June fell 12 percent from a year earlier. Second-quarter approvals dropped 19 percent. The figures suggest a decrease in construction and economic growth. House sales fell 42 percent in June from a year earlier. [cite news|url=|title= New Zealand Building Approvals Fall to 22-Year Low|publisher=Bloomberg|date=2008-07-29|accessdate=2008-08-10] The Treasury of New Zealand concluded the country's economy had contracted for a second quarter based on economic indicators, putting New Zealand in a recession. [cite news|url=|title= New Zealand 'enters recession'|publisher=BBC News|date=2008-08-05|accessdate=2008-08-10] New Zealand's central bank cut rates by half a percent arguing the economy was in recession.cite news|url=|title=New Zealand slashes rates as economy lurches toward recession|publisher=The Daily Telegraph|date=2008-09-11|accessdate=2008-09-12] New Zealand's GDP declined by 0.2 percent in the second quarter putting the country in its first recession in a decade. [cite news|url=|title=New Zealand Economy Shrank 0.2%, Confirming Recession|publisher=Bloomberg|date=2008-09-26|accessdate=2008-09-26]

In Australia, Hans Redeker, currency chief at BNP Paribas has said Australia would have to generate 4 percent of its GDP to meet payments to foreign holders of its assets. National Australia Bank on July 29, 2008 cut a £400 million bond sale by two thirds following investor flight and opted for a 100 percent write-off on a clutch of "senior strips" of AAA-rated collateralized debt obligations (CDO) worth £450 million. Approvals for loans to build or buy homes and apartments decreased 3.7 percent in June of 2008. Housing prices in Australia fell in the second quarter of 2008 for the first time in about three years. Consumer confidence in Australia fell to a 16-year low in July and retail sales fell 1 percent in June. [cite news|url=|title=Australia's Home-Loan Approvals Drop to Four-Year Low|publisher=Bloomberg|date=2008-08-06|accessdate=2008-08-11] High profile casualties of the credit crunch include Allco Finance, MFS, ABC Learning, Babcock & Brown and Centro while numerous other institutions have lost a significant part of their value. [ [ Who can you trust?] Michael West, September 18, 2008 - 12:27PM ]

Moody's Investors Service warned on July 7, 2008 that South Africa could slip into a recession by the turn of the year. Moody's cited electricity shortages, high interest rates, soaring inflation, a slumping housing and vehicle market and lower business and consumer confidence indicators. Growth in South Africa's gross domestic product for the first quarter of 2008 slowed to 2.1%. CPIX inflation, the monetary-policy inflation target measure, rose 10.9% on a year-on-year basis in May, its highest level since November 2002. [cite news|url=|title=Moody's says South Africa may slip into recession|publisher=Market Watch|date=2008-07-07|accessdate=2008-07-19] South Africa's National Treasury criticized the statement by Moody's saying, "It's not possible that we'll end up in recession." He added that the government may revise lower its 4 percent growth forecast for the year following growth of 5.1% in 2007. Car sales in South Africa dropped an annual 22 percent in June due to higher interest rates. [cite news|url=|title=South Africa Says Moody's Recession Claim `Alarmist'|publisher=Bloomberg|date=2008-07-09|accessdate=2008-07-19]

In Japan exports in June declined for the first time in about five years falling by 1.7 percent. Exports to the United States and European Union fell 15.4 percent and 11.2 percent respectively. The decline in exports and increase in imports cut Japan's trade surplus $1.28 billion a decline of 90 percent from the previous year. An economist at the Royal Bank of Scotland said the decline means the Japanese economy most likely declined in the second quarter. [cite news|url=|title=Japan exports shrink as global downturn hits Asia|publisher=Reuters|date=2008-07-24|accessdate=2008-07-25] Taro Aso, secretary-general of Japan's ruling Liberal Democratic Party, said he believes Japan had entered a recession. [cite news|url=|title=Japan ruling party's Aso: Economy in a recession|publisher=Reuters|date=2008-08-05|accessdate=2008-08-10] Japan's economy declined by 0.6 percent in the second quarter of 2008. [cite news|url=|title=Japan heads towards recession as GDP shrinks|publisher=The Times|date=2008-08-13|accessdate=2008-08-17] This was later revised to a decline of 0.7 percent. [cite news|url=|title=Japan economy contracts by most in seven years|publisher=Agence France-Presse|date=2008-09-12|accessdate=2008-09-16] Japanese exports grew 0.3 percent in August of 2008 compared to a year before down from 8 percent the previous month. Exports to the U.S. fell 21.8 percent, the biggest decline on record, and exports to Europe fell 3.5 percent. [cite news|url=|title=Japan's Export Growth Slows as U.S. Shipments Plunge|publisher=Bloomberg|date=2008-09-25|accessdate=2008-09-26] In South Korea Samsung Electronics has been reported to be posting a decrease in sales for the first time since the Asian financial crisis since home appliances saw a decrease in the domestic market of up to 20 percent since mid-June compared to the previous year. Domestic auto sales also saw a decrease in the second quarter. Auto exports also posted a loss and exports of home appliances were also reported to be in decline. [cite news|url=|title=Autos, Electronics Face Slumps at Home and Abroad|publisher=The Chosun Ilbo|date=2008-07-07|accessdate=2008-07-25]

Singapore's economy saw its biggest drop in five years in the second quarter, falling by 6.6 percent however the Managing Director of Singapore's central bank said a technical recession was not likely. [cite news|url=|title=Singapore ups inflation view once again|publisher=Reuters|date=2008-07-24|accessdate=2008-07-25] Singapore cut its 2008 GDP forecast to between 4 and 5 from 4 to 6 percent before, and then again down to 3 percent. [cite news|url=|title=Singapore Cuts GDP Forecast as Asian Nations Face Slower Growth|publisher=Bloomberg|date=2008-08-09|accessdate=2008-08-10] Singapore's economy contracted in the third quarter, placing the country in recession. []

Taiwan announced billions of dollars in spending and tax cuts due to declining growth and a 26 percent slump in the stock market in 2008.

In May 2008 Canada's GDP was reported to have decreased 0.1 percent due to decline in mining, oil and gas industry by 1.2 percent and fall in Automobile production by 3.6 percent. Construction output in Canada declined 0.4 percent, utilities 1.3 percent, and farms produce 0.9 percent less. [cite news|url=|title=Canada GDP Unexpectedly Shrank in May on Gas, Cars|publisher=Bloomberg|date=2008-07-31|accessdate=2008-08-10] In the first quarter of 2008 Canada's economy shrank by 0.3 percent and the Bank of Canada said second quarter growth would likely be less than 0.8 percent projected. [cite news|url=|title=Economy, inflation weaker than expected, says Bank of Canada|publisher=The Canadian Press|date=2008-08-26|accessdate=2008-08-26] Canada later revised its first quarter GDP showing a contraction of 0.8% and gave second quarter GDP showing an increase of only 0.3%. [cite news|url=|title=Canada squeaks past recession as GDP edges up in second quarter|publisher=The Canadian Press|date=2008-08-29|accessdate=2008-08-29]

By September 2008, the crisis threatening the GSEs (US mortgage lenders Fannie Mae and Freddie Mac) began to have consequences in Asia. The foreign exchange reserves of South Korea's central bank contained many depreciating "Agency bonds" from the GSEs, threatening a currency crisis and leading to depreciation of the South Korean won against the US dollar and other major currencies, [cite web|url= |title=South Korea heads for black September with won problems - Times Online | |author=Leo Lewis in Seoul |date= |accessdate=2008-10-01] while in China, a struggle was underway to see who would swallow the losses on US Agencies and Treasuries. [cite web|url= |title=China’s Central Bank Is Short of Capital - | |author=Keith Bradsher |date=Published: September 4, 2008 |accessdate=2008-10-01] The bankruptcy of Lehman Brothers raised concerns about global exposure to the assets and stock of Lehman Brothers and the potential for the bankruptcy to cause further tightening of credit. Taiwan, despite reporting few losses from the subprime mortgage crisis, was said to have Lehman-related exposure for its companies and retail investors totaling $2.5 billion. Two Japanese banks appeared on the list of major Lehman creditors. [cite news|url=|title=Lehman fallout threatens deeper, wider recession|publisher=Reuters|last=Kaiser|first=Emily|date=2008-09-16|accessdate=2008-09-16]

In Pakistan the central bank's foreign currency reserves, when counting forward liabilities is said to only amount to as little as $3 billion, sufficient for a single month of imports. Corruption and mismanagement have combined with high oil prices to damage Pakistan's economy. Pakistan's rupee has lost more than 21 per cent of its value in 2008 and inflation is at 25 per cent. The government has failed to defer payments for Saudi oil or raise favorable loans. President Asif Ali Zardari claimed Pakistan needed a bailout worth $100 billion which he was expected to ask for at a meeting in Abu Dhabi in November. Ratings agency Standard and Poor's rates Pakistan's sovereign debt at CCC +, only a few ratings above the default level, warning the country may be unable to cover about $3 billion in upcoming debt payments. [cite news|url=|title=Pakistan facing bankruptcy|publisher=The Daily Telegraph|last=Wilkinson|first=Isambard|date=2008-09-16|accessdate=2008-09-16]

Global inflation

In February 2008, Reuters reported that global inflation was at historic levels, and that domestic inflation was at 10-20 year highs for many nations. [cite news|url=|title=Global inflation climbs to historic levels|publisher=International Herald Tribune|date=2008-02-12|accessdate=2008-07-11] "Excess money supply around the globe, monetary easing by the Fed to tame financial crisis, growth surge supported by easy monetary policy in Asia, speculation in commodities, agricultural failure, rising cost of imports from China and rising demand of food and commodities in the fast growing emerging markets," have been named as possible reasons for the inflation. [cite news|url=|title= Are emerging economies causing inflation?|publisher=Economic Times (India)|date=2008-07-08|accessdate=2008-07-11]

In mid-2008, IMF data indicated that inflation was highest in the oil-exporting countries, largely due to the unsterilizedClarifyme|date=October 2008 growth of foreign exchange reserves. However, inflation was also growing in countries classified by the IMF as "non-oil-exporting LDCs" (Least Developed Countries) and "Developing Asia", on account of the rise in oil and food prices. [cite web|url=|title=Prospects for Inflation "outside" America - Guest Post from Menzie Chinn|publisher=Jeff Frankel's Weblog|date=2008-06-26|accessdate=2008-07-11]

Inflation was also increasing in the developed countries, [cite web|url=|title=EU slashes growth forecast, foresees inflation surge] [cite web|url=|title=EU cuts growth forecast] but remained low compared to the developing world.

Stock markets

As of October 2008, stocks in North America, Europe, and the Asia-Pacific region had all fallen by about 30% since the beginning of the year. [cite web|url=|title=Contagion, revisited|author=Paul Krugman|format=PDF] The Dow Jones Industrial Average had fallen about 37% since January 2008. [cite web|url=|title=Yahoo Finance Historical Data]

There were several large Monday declines in stock markets world wide during 2008, including one in January, one in August, one in September, and another in early October.

Market downturn of September and October 2008

The simultaneous multiple crises affecting the US financial system in mid-September 2008 caused large falls in markets both in the US and elsewhere. Numerous indicators of risk and of investor fear (the TED spread, Treasury yields, the dollar value of gold) set records. [cite web|url=|title=Panic grips credit markets]

Russian markets, already falling due to declining oil prices and political tensions with the West, fell over 10% in one day, leading to a suspension of trading, [cite web|url=|title=Behind the Russian Stock Market Meltdown] while other emerging markets also exhibited losses. [cite web|url=|title=Markets Drop Around the World on Turmoil, Fears About Growth]

On September 18, UK regulators announced a temporary ban on short-selling of financial stocks. [ [ Short Selling Restriction] ] On September 19 the United States' SEC followed by placing a temporary ban of short-selling stocks of 799 specific financial institutions. In addition, the SEC made it easier for institutions to buy back shares of their institutions. The action is based on the the view that short selling in a crisis market undermines confidence in financial institutions and erodes their stability. [ [ SEC Halts Short Selling of Fiancial Stocks on 09-19-2008] ]

On September 22, the Australian Securities Exchange (ASX) delayed opening by an hour [cite news|url=|title=ASX opens after delay|publisher=SBS World News|date=2008-09-22|accessdate=2008-09-23] after a decision was made by the Australian Securities and Investments Commission (ASIC) to ban all short selling on the ASX. [cite news|url=|title=ASIC bans all short-selling|publisher=The Age (Fairfax Media)|date=2008-09-22|accessdate=2008-09-23] This was revised slightly a few days later. [cite news|url=|title=ASIC issues new short selling guidance|publisher=The Age (Fairfax Media)|date=2008-09-25|accessdate=2008-09-26]

ee also

*2000s energy crisis
*2007–2008 world food price crisis
*2008 Russian financial crisis
*Bear Stearns subprime mortgage hedge fund crisis
*Financial crisis of 2007–2008
*January 2008 stock market volatility
*List of entities involved in 2007–2008 financial crises
*Savings and Loan crisis
*Subprime mortgage crisis
*Subprime crisis impact timeline
*United States housing market correction


External links

* [ "The Depression of 2008"] Fred Foldvary 2007

* [ Global Economic Crisis Resource Guide] - Indexed sites include news, special coverage websites, economic indicators, statistics, credit and debt, energy, food, housing, mortgages, subprime, labor and unemployment, and related resources from the U.S. Government. Directory from Middletown Thrall Library, A Federal Depository Library

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