Question

What were the main root causes of Mexico's 2009-2010 recession? Where the root causes due to market failure or government failure? How did market or government failure play a role in recession of 2009-2010? How did the government react to the recession? What was the response from the government after the recession?

Answer 1

1. High-interest rates. When rates rise, they limit liquidity. It's the amount of money available to invest. The biggest culprit was the Federal Reserve, which often raised interest rates to protect the value of the dollar. The Fed raised rates to battle stagflation, causing the 1980 recession. It did the same thing to protect the dollar/gold relationship, worsening the Great Depression.
2. A stock market crash. The sudden loss of confidence in investing can create a subsequent bear market, draining capital out of businesses. That's just one of the ways a stock market crash can cause a recession.

1. Falling housing prices and sales. As homeowners lose equity, it forces a cutback in spending as they can no longer take out second mortgages. Over time, it will cause foreclosures. This was the initial trigger that set off the Great Recession, but for different reasons. Banks lost money on the complicated derivatives that were based on underlying home values.
2. A slowdown in manufacturing orders. Orders for durable goods started falling in October 2006, before the 2008 recession actually hit.