Continuing Problems: the economywhat caused the recession ( decrease of the value of money power) of 1989- 90?

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kapokkid eNotes educator| Certified Educator

Some of the biggest problems were brought about by what had been a headlong rush into things like junk bonds and riskier investments and a change in banking practices that also allowed banks to be more leveraged (higher debt to asset ratios) in pursuing those profits.  Once some of the investments went bad, the savings and loan industry (which had been racing into these risky investments) found itself in a hole that it could not emerge from.  This led to a serious loss of value on the stock market (the crash of 1987) that then led to a recession that was felt in the US but also in other countries around the world who were also tied up to some extent in some of the same markets.

The recession that followed was very sharp, leading to what some economists call a "V" curve as it was a sharp downturn and a sharp upswing.  Not all areas of the economy rebounded as quickly as some as the recovery in terms of employment and real estate took slightly longer than in other areas.