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Introduction
The financial crisis of 2007–2008, also known as the global financial crisis and the 2008
financial crisis, the world experienced a tremendous financial crisis which started in the
United States housing market. “On the 19 September 2008, the IMF warned that the world
was ‘on the brink of a systemic meltdown” (Griffiths, 2012)
During the GFC, a downfall in the United States housing market was one of the major
reasons for a financial crisis that spread from the United States to the rest of the world
through globalization in the global financial system. Many banks around the world
experienced huge losses and relied on government support hoping to avoid bankruptcy. But
some were even forced into bankruptcy, like Lehman Brothers. In the United States many
individuals took out home loans and they couldn't pay back it caused many mortgage
companies and banks to lose huge sums of money and go bankrupt. It was additionally in the
United States where house price initially began to fall causing a negative wealth effect and
fall in consumer spending. (Reserve Bank of Australia, 2018).
Impact of global financial crisis on United States economy
As you can see from the graph 2008 to 2010 had drastically declined in United States GDP
annual growth rate. In 2008, all major economies experienced a very drastic drop in real
GDP. The banking crisis severely reduced bank lending. Consumers and investors reduced
their spending leading to real GDP fell sharply. The average annual Gross Domestic Product
growth of United States economy over the last 8 years was only 1.2% per year. Included that
takes into account of the global financial crisis of 2008 where GDP was negative in both
2008 and 2009. Here’s the United States annual growth rate from 2007 to 2009. 2007 = 1.8%,
2
2008 = -0.3% and 2009 = -2.8% That’s when the recession started in the US (Voudrie,
2015).
I think one of the major cause lack of financial education of the households, many households
took out several loans but little do they know that how changes in interest rate can affect their
repayment or the financial terms and conditions they sign in their contract. And when interest
rate changes, many borrowers have failed to pay interest or principal on a loan when is due.
In this recession, the decline in housing prices made many Americans feel poorer and a few
of them, who had to depends in refinancing mortgages to provide cash to spend but had no
choice to reduce their spending hence it led to lesser consumption and forced the country to
increased cuts in spending and public workforce. Businesses were forced to slow their
expansion plans as their profit fell hence they began to lay off workers, leading to a massive
slowdown in economic growth and increase in unemployment rate.
US Export affected during the global financial crisis
The United States was the world's third-largest exporter, after China and the European Union.
It was the world's second-largest largest importer after the European Union (Amadeo, 2018).
And during the global financial crisis on 2008, it started to decline drastically. This Global
Financial Crisis led to nationwide cuts in the United States production and employment. The
slowing in total United States spending also included a reduction in purchases of imported
goods. This reduction, along with the weakening of the United States economy and its
financial system, affected the rest of the world, rather like a ripple effect. As the GDP growth
in the rest of the world slowed down, other nations reduced their purchases of goods and
services, including those produced in the United States causing a drastic decline in United
States exports. As a result, the United States GDP growth dropped even more.
Main exports are capital goods 39 % of total exports and industrial supplies 28 %. Others
include consumer goods 12 %, vehicles, parts and engines 10.5 %, foods and beverages 7 %.
In 2017, main exports partners were Canada 18 % of total exports, Mexico 16 %, China
8.5 %, Japan 4 %, Germany 3 % and the United Kingdom 3 % (Trading Economics, 2018).
Imports of consumer good that decrease the most in 2009, they were down 11%, to $428
billion. And the critical issue was the decline in import of an industrial good, which fell 41%,
to $461 billion. Overall, imports fell by $546 billion, to $1.56 trillion, while exports declined
by $231 billion, to $1.06 trillion. The United States had 68 cents of exports for every dollar of
imports. At the peak of trade deficit, in 2005, that figure as 54 cents. (Norris, 2010)
Ex-President Barack Obama wants small companies to export their way out of recession, the
