Ups and Downs
You’ve probably heard the news–the economy isn’t doing so well. Companies are laying off workers, banks aren’t lending money, home prices are falling. What’s going on? It’s a recession–and it’s not the first time. The economy goes through a cycle of booms and busts pretty regularly. In this issue of The Vault, we give you some background on why things went sour–and even why recessions aren’t all bad.
Do you know what the word “recession” really means? Find the answer toward the bottom of this issue!
The Business Cycle
When times are good, people have money to spend. They buy things, which creates more jobs, and more spending, and so on–so let the good times roll! But when people lose confidence, they spend less, so companies have to cut back; they create fewer jobs, and people feel even worse about the future–reinforcing the downward spiral.
What Caused the Downturn?
It’s pretty complicated, but experts agree that today’s troubles are based on one simple thing: banks made billions of dollars in home loans to people who could not afford them. Then, the banks created investment schemes based on those bad loans. When the home buyers couldn’t make their payments, the investment schemes failed–and a lot of very big banks failed along with them.