What caused the U.S. economic downturn in 2008, and how did it affect the rest of the world?

The U.S. economic downturn in 2008 was primarily triggered by the collapse of the housing market bubble, leading to a financial crisis that spread across various sectors of the economy. Several factors contributed to this crisis:

1. Housing Market Bubble: The housing market experienced a boom fueled by easy access to mortgages, low interest rates, and risky lending practices. This led to a surge in housing prices, creating a housing bubble. When borrowers started defaulting on subprime mortgages (high-risk loans given to borrowers with poor credit histories), it led to a sharp decline in housing prices.
2. Financial Sector Crisis: The widespread use of mortgage-backed securities and complex financial derivatives amplified the impact of the housing market collapse. Many financial institutions held these securities, leading to significant losses and creating a crisis in the banking sector. Lehman Brothers' bankruptcy in September 2008 further exacerbated the situation, causing panic in financial markets.
3. Global Impact: The U.S. financial crisis had profound repercussions globally. Many economies around the world were interconnected with the U.S. financial system through trade, investments, and financial instruments. The crisis resulted in a global credit crunch, stock market declines, and a slowdown in economic growth worldwide. Countries heavily reliant on exports to the U.S. suffered as American consumers cut spending, impacting global trade flows.

The 2008 financial crisis led to a severe recession in the U.S., marked by rising unemployment rates, foreclosures, and a decline in consumer confidence. Internationally, it caused recessions or economic slowdowns in various countries, affecting industries, financial markets, and leading to increased global economic uncertainty.

Governments and central banks globally implemented various measures, such as fiscal stimulus packages and monetary policy interventions, to stabilize their economies and mitigate the impacts of the crisis. The effects of the 2008 crisis highlighted the interconnectedness of the global economy and prompted reforms in financial regulations and risk management practices to prevent similar crises in the future.