The release of the UK’s economic budget on the 23rd April raised a lot of questions in terms of the world’s financial situation. The country’s borrowing and rate of unemployment are both at a record high. But what does it all mean? How did it get this bad? Come to think about it, what is a recession and why are an estimated 3.2 million people in the UK alone unemployed as a result? These questions and more I will attempt to answer.

Firstly, what qualifies me to investigate this issue? I am a journalist, and was featured in The Independent’s Budget 2009 special edition as the token unemployed (I am freelance, therefore technically unemployed as I’m not working full-time) graduate commenting on the budget and what it means to people like you and me.

The budget for Britain’s finances was announced by the Chancellor of the Exchequer, Alistair Darling on April 23rd. It was like a culmination and confirmation of everything that members of the public feared: the economic situation is as bad as we thought and it will take years to recover the economy. As part of his speech in the House of Commons, Alistair Darling said he hopes that the economy will have a 3.5% growth by 2011 but even that was attacked by the opposition for being ‘wildly optimistic’, which suggests even these shocking statistics have been somewhat censored. It could take even longer than that. This was reinforced by Liberal Democrat leader Nick Clegg, who said, “One thing is more important than anything else when it comes to the public finances: growth. Without growth there’ll be no money anywhere to pay off the nations’ debt.” And the nation’s debt is huge. Darling predicted he will need to borrow an unprecedented £175bn to fill the gaps. It is thought that government stimulus packages will reach 81bn Euros in Germany, and as much as $586bn in China.

As you can tell, this is not good. But the official term is that the UK and other European countries are in a recession. To be in a recession, the country in question must record at least two quarters (three months) of negative growth in the GDP of the country. GDP is the Gross Domestic Product, ie, the value of all of the goods and services that the country produces in its economy, minus the cost of imported services. This includes things like food, wood and steel. The UK, as an example, due to its island status, imports more products and services than it exports, although it makes up for this with exporting ‘invisible’ goods such as insurance and business knowledge.

In a (very small) nutshell, the financial crisis can be explained as the fact that banks lent money to customers who did not have the means to pay it back. This lead to a huge deficit in banks’ finances, which meant that they became increasingly cautious about lending to others or each other, and slowly the economy collapsed as a result. The people who did have money to spend, ie the richer members of society, did not feel confident enough in the economy to spend it, and so the finance gap got wider. This has lead to bankers and bank bosses being scapegoated for the crisis, but it can be argued strongly that governments inevitably new what was going on long before world economies crashed and could have helped prevent it.

A turning point in the whole ‘economic situation’ was the week of the 15th September 2008. Firstly, we had the bankruptcy of the Lehman Brothers banks, secondly the Bank of America purchased Merrill Lynch then the American Insurance Group sought a bailout from the federal reserve bank. The British and American governments were seemingly willingly offering huge bailouts payments for companies that reached financial crisis. One such example was the Northern Rock Group, which was effectively taken over by the British government in 2008 to save it from collapse.

The effect of the financial crisis has hit everyone, from Japan and Korea to Australia, Europe and America. Every country is linked by the economy. Businesses, both large and small, as well as individuals, and the property market have been affected in one way or another. Even entire high streets have changed, with the collapse of Woolworths and other big retail chains. Businesses who rely on credit from banks have found themselves victom of banks not lending their money to people as a result of ‘over-lending’ before. Therefore, said businesses are forced to make spending cuts to balance their books. The easiest way to do this is cut staff, resulting in an estimated three million people unemployed in the UK alone as a result. More people than ever are signing onto jobseekers allowance.

There is an endless amount of comment and analysis that can be done on this subject, and I could continue, but I won’t. The good news is some experts believe the worst is over, the bad news is the economy probably won’t recover properly for several years.