What caused the economy to take a dip about a year ago?

Question

Around last July or August, the economy started to downslope, what caused this?

Answer 1

Spending beyond our means and excessive debt.  The housing market when sour due to loans that should not have been made and all the securities backed by these weak loans.  We started to see an increase in fuel prices and the price of wheat , corn, etc. pushed up also.

Answer 2

Along with what has been said to answer this question (discussing the housing market), a global situation and an internal manufacturing and economic situation is also at play.

The United States has become Unfriendly to manufacturing compared to other countries. We have special interest groups that have quadropled prices here for manufacturing through environmental laws, land restrictions, etc. While this has occurred we also have unions  which have demanded pensions, health care, etc., all of this has made manufacturing less expensive overseas. Not to mention we are sue happy and that has increased liabilities here.

We have spent the profits we made from being king of manufacturing right after WWII, and we have not revamped our manufacturing like we did during the industrial revolution. In other words developing countries are working with CNC machinery while we are still throwing away some machines left over from the industrial revolution which are archaic. Manufactures do not want to keep producing here because of costs, environmental laws, etc. So we send our dollars over seas  without producing enough to balance what we import, instead we play with the numbers to make it feel like we are productive while in reality we have no GNP compared to our imports (our consumption).

We cannot produce enough wheat to equal what we import. Law suits and insurance policies are NOT production they should not be counted in the GNP. In fact internal home building as part of the GNP is questionable when it comes to a true evaluation of the US dollar in international markets.

We are in BIG trouble.

We will be totally broke, no matter how much we print in around 20 years UNLESS we do something NOW.

I mean broke to the point that there is NO us dollar any more.

And probably NO US constitution either.

Answer 3

High Gas prices caused it.

Answer 4

The WORLD did it ----more people, less food, more disasters, less help & take too long,  High cost in production but more cheap products on sale ----ending with more OUT less IN and down the dollar, the economy.

Answer 5

This was a long time coming. It all started about 8 to 10 years ago when the subprime mortgage markets started making risky loans to people who had shaky income, charging relatively low interest rates.

The low interest rates made it affordable to own rather than rent. So people started, slowly at first, buying homes and fixing them up. Some of those people flipped their properties for a small profit.

Investors and speculators soon joined in about 2001 - 2002 and a land fever erupted.

Pretty soon by 2004, there were scant stocks of available real estate and the price of real property skyrocketed many times over.

As 2005 neared, many of those low interest loans actually adjusted and the interest rates shot up. Many people who had to pay those mortgages didn't make enough to meet the increased adjusted payments.

As foreclosures started to occur, at first in small numbers, and later on in much larger numbers, the price of real estate dropped. But also, non-foreclosure property, that is property owned by investors and speculators did not go down in price. They held on hoping to recover a profit.

However, in time, as more and more people realized they didn't make enough to afford to pay a mortgage on an expensive house, the demand dropped. But also, foreclosures increased. Which means supply was high, and demand was way low.

Then, as foreclosures mounted and values dropped, lenders had to readjust the actual book value of mortgages that were held because they were bundled up and sold as mortgage securities by and to investment banks and securities firms.

With massive write downs, the value of the non-performing mortgages (foreclosures) depleted investments to near zero. That caused a meltdown in the mortgage lending business.

Money for lending has since tightened significantly.

Now there's plenty of real property available for sale, but not enough money to buy it with because lenders are very stringent now as to who they will lend to.

Therefore, if you have cash, you are king. If not, you have to beg like a circus dog for a loan.