Global Financial Crisis 2008

The Economic Crisis of 2008 is believed to have occurred because of global inflation,
increased unemployment, high oil and food prices, a declining dollar value, a
horrible housing market, market instability, uncontrolled credit and loans.

1. Global inflation-
The rise in price of goods and services, the overall cost of living and cost of business
rises because most prices increase.

Worst Case Scenario

Hyperinflation
Hyperinflation is inflation that is very high or "out of control", a condition in which
prices increase rapidly as a currency loses its value.
Example:

A 500 billion Yugoslav dinar banknote circa 1993, the largest nominal value ever
officially printed in Yugoslavia, the final result of hyperinflation.

2. Unemployment
Unemployment describes the state of a worker who is able and willing to take work but
cannot find it.

Worst Case Scenario

Example:

Highest Unemployment Rates in the World

Country Unemployment rate (%)

1 Liberia 85.00
2 Kiribati 70.00
3 Zimbabwe 70.00
4 Zambia 50.00
5 East Timor 50.00
6 Senegal 48.00
7 Nepal 47.00
8 Lesotho 45.00
9 Botswana 40.00
10 Kenya 40.00
11 Bangladesh 40.00
12 Bosnia and Herzegovina 40.00
13 Tajikistan 40.00
14 Macedonia 36.70
15 Namibia 35.00
16 Marshall Islands 34.30
17 Serbia and Montenegro 34.50
18 Swaziland 34.00
19 South Africa 31.00

3. High oil and food prices

For a time, certain geo-political events and natural disasters not directly related to the
global oil market had strong short term effects on oil prices, such as North Korean missile
tests, the 2006 conflict between Israel and Lebanon, worries over Iranian nuclear plans in
2006, Hurricane Katrina, and various other factors. By 2008, such pressures did not
appear to have as much of a significant impact on oil prices, possibly because of a global
recession. In December 2008, oil prices fell to below $40 per barrel.

Worst Case Scenario

Example:

Oil Prices Fall As Hurricane Hits

Oil prices have fallen to four-month lows despite all production in the Gulf of Mexico
being shut down due to Hurricane Gustav.

About 1.9 million people left the USA's Louisiana coast region as Gustav neared

In 2005, Katrina and Hurricane Rita destroyed 109 oil platforms and five drilling rigs.
About 1.9 million people left the Louisiana coast region, the largest evacuation in state
history, and thousands more left from Mississippi, Alabama and flood-prone south-east
Texas.
Gustav has already killed at least 94 people on its path through the Caribbean, and comes
three years after Katrina killed 1,600, mostly from flooding in New Orleans.
4. Uncontrolled credit and loans

Greed. Credit is a great tool when used wisely. For instance, credit can be used to start or
expand a business, which can create jobs. It can also be used to purchase large ticket
items such as houses or cars. Again, more jobs are created and people’s needs are
satisfied. But in the last decade, credit went unchecked in our country, and it got out of
control. Thousands of people took out loans larger than they could afford in the hopes
that they could profit on selling it back but instead it turns out they made another loan
after another in return.

Worst Case Scenario

Example:

AIG Crisis Is Hitting Close To Home

American International Group is facing a serious liquidity crisis and potentially a

complete failure. However it’s being saved by the U.S. government who loaned $85
billion dollars to AIG and assumed 79.9% stake in the insurance company. Personally, I
don’t like the idea of government bail out, because I believe these companies should have
done their due diligence and practice financial responsibility — or face the consequences.