The Federal Reserve & The Economic Crisis

by Kristina on December 29, 2011 · 0 comments

Good Morning DINKS.  Our great friends at Bankrate recently published a post about the history of the United States Federal Reserve.  Here at DINKS Finance we are fortunate enough to share a little bit of US History (that you may or may not know) with you.

December 13th was the last day that the Federal Reserve met together in 2011. Although we have all been impacted in one way or another by the recent global economic crisis, and many of us are still currently living through financial hardships, unfortunately this is not the first time that the United States has been affected by a global economic crisis.

Nowadays global markets are interconnected through trade, imports, and exports; and countries all over the world are interconnected through the foreign exchange of currency.  This makes international travel and financial transitions very easy for consumers, but at the same time the solvency or insolvency of a foreign country can be very devastating to our local economy in the United States of America.

Below is a timeline that chronicles how global events have impacted the U.S. economy from the early 1800s up to the recent 2008 economic crisis of 2008.

– The first major economic Depression lasted 103 years from 1819 to 1922.  Unstable financial conditions in Europe directly impacted and created unstable panic in the economy of the United States of America.

– 1931 marked the beginning of the Great Depression. Once again the economic impact that a crisis in Europe had on the United States of America was financially devastating. The collapse of one of Austria’s largest banks created panic in Eastern Europe which snowballed into other countries around the world including the United States. Bank runs and Government bailouts in Eastern Europe created panic in the United States of America during this time period.

– In 1992 a common currency now known as the Euro was created among several countries that are now known as the European Union. However not all European countries chose to join the European Union and adopt the Euro as their official currency.  Countries who joined the European Union had regulated fiscal policies which controlled their debts as well as their federal spending. However, non member European countries did not have to abide by the same financial guidelines.  Therefore non European Union countries without regulations could become indebted and eventually insolvent.

– The 2008 Economic Crisis’ in Asia and in the United States were fueled by over extended credit. Prior to 2008 it was very easy for borrowers and homeowners to obtain credit and mortgage home loans. This flexibility made it easy for consumers to buy homes and therefore we experienced a real estate boom.  Whenever there is a market boom where investors expectations are overly aggressive there is bound to be a boom bust as the market is forced to correct itself.  Optimism is a great characteristic but we cannot allow it overrule reality. Hoping that things get better won’t necessarily make them better. We have to take actions to correct our mistakes otherwise change will never happen.

Photo by KevinK

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