- From Q2 2009 to Q4 2016, economic growth, as measured by the change in real GDP, averaged 2.0 percent. This was slower than the 2.6 percent average from the first quarter of 1989 through the fourth quarter of 2008. During President Bush’s first term, real GDP increased by about 3%, but barely 0.5 percent during his second. GDP growth was close to 4% during the Clinton administration, somewhat quicker than the Reagan administration.
- Real GDP increased by $2.4 trillion (16.6%) from $14.4 trillion in Q1 2009 to $16.8 trillion in Q4 2016, a total increase of $2.4 trillion. Real GDP per capita increased by $4,593 (or 9.7%) from $46,930 in 2009 to $51,523 in 2016 (a new high).
- During his presidency, inflation (as assessed by the CPI-All Urban Consumers, All Items) plummeted to an all-time low, averaging 1.4 percent from Q2 2009 to Q4 2016, significantly below the 3.0 percent average from Q1 1989 to Q4 2008.
- Interest rates declined as well, and they stayed extremely low. From Q2 2009 to Q4 2016, the yield on a 10-year Treasury bond averaged 2.4 percent, substantially below the 5.8 percent average from Q1 1989 to Q4 2008.
- The national debt held by the public increased by $8.1 trillion or 128 percent from $6.3 trillion on January 31, 2009 to $14.4 trillion on December 31, 2016. When expressed as a percentage of GDP, it increased from 52.3 percent in 2009 to 76 percent in 2016. In contrast to Obama’s actions, the majority of the debt rise was inherited from the previous administration (e.g., tax cuts and wars) or was caused by the Great Recession (e.g., decreased revenue and greater automatic stabilizer expenditure).
- The national debt (public debt + intra-governmental debt) increased by $9.4 trillion, or 88 percent, from $10.6 trillion on January 31, 2009 to $20.0 trillion on December 31, 2016.
- Obama presided over the third-longest economic boom of the 33 expansions examined since 1857, as well as the longest continuous period of private sector employment creation since 1939.
What was Obama’s contribution to the country?
Barack Obama’s term as President of the United States began on January 20, 2009, with his first inauguration, and ended on January 20, 2017. Obama, an Illinois Democrat, was elected president after defeating Republican contender John McCain in the 2008 presidential election. He was re-elected four years later, defeating Republican nominee Mitt Romney in the 2012 presidential election. Obama was followed by Donald Trump, a Republican who won the presidential election in 2016. He was the first African-American president, as well as the first multiracial, non-white, and Hawaiian president.
A significant stimulus package, a partial extension of the Bush tax cuts, health-care reform legislation, a big financial-regulation reform law, and the termination of a major US military presence in Iraq were among Obama’s first-term actions. Obama also named Supreme Court Justices Elena Kagan and Sonia Sotomayor, the latter of whom became the Supreme Court’s first Hispanic American. Until Republicans won a majority in the House of Representatives in the 2010 elections, Democrats controlled both houses of Congress. Following the election, Obama and congressional Republicans got into a long fight over government spending and the debt ceiling. The Obama administration’s anti-terrorism strategy downplayed Bush’s counterinsurgency strategy, relying more on host-government militaries and extending air strikes and special forces deployments. The military operation that culminated in Osama bin Laden’s murder on May 2, 2011, was orchestrated by the Obama administration.
Obama took moves to tackle climate change during his second term, signing a major international climate pact and an executive order limiting carbon emissions. Obama also oversaw the implementation of the Affordable Care Act and other laws signed into law during his first term, as well as the negotiation of a nuclear deal with Iran and normalization of relations with Cuba. During Obama’s second term, the number of American forces in Afghanistan decreased considerably, however American troops remained in Afghanistan throughout his presidency. Following the 2014 elections, Republicans took control of the Senate, and Obama continued to clash with them on government spending, immigration, judicial nominees, and other matters.
What was the GDP growth in the first quarter of 2009?
2009 Overall The GDP growth rate in 2009 was -2.5 percent. To put it another way, the GDP shrank by 2.5 percent. 8 This indicator shows how real GDP has changed from quarter to quarter. The ideal GDP growth rate is in the range of 2% to 3%.
What is the current GDP?
Retail and wholesale trade industries led the increase in private inventory investment. The largest contributor to retail was inventory investment by automobile dealers. Increases in both products and services contributed to the increase in exports. Consumer products, industrial supplies and materials, and foods, feeds, and beverages were the biggest contributions to the growth in goods exports. Travel was the driving force behind the increase in service exports. The rise in PCE was mostly due to an increase in services, with health care, recreation, and transportation accounting for the majority of the increase. The increase in nonresidential fixed investment was mostly due to a rise in intellectual property items, which was partially offset by a drop in structures.
The reduction in federal spending was mostly due to lower defense spending on intermediate goods and services. State and local government spending fell as a result of lower consumption (driven by state and local government employee remuneration, particularly education) and gross investment (led by new educational structures). The rise in imports was mostly due to a rise in goods (led by non-food and non-automotive consumer goods, as well as capital goods).
After gaining 2.3 percent in the third quarter, real GDP increased by 6.9% in the fourth quarter. The fourth-quarter increase in real GDP was primarily due to an increase in exports, as well as increases in private inventory investment and PCE, as well as smaller decreases in residential fixed investment and federal government spending, which were partially offset by a decrease in state and local government spending. Imports have increased.
In the fourth quarter, current dollar GDP climbed 14.3% on an annual basis, or $790.1 billion, to $23.99 trillion. GDP climbed by 8.4%, or $461.3 billion, in the third quarter (table 1 and table 3).
In the fourth quarter, the price index for gross domestic purchases climbed 6.9%, compared to 5.6 percent in the third quarter (table 4). The PCE price index climbed by 6.5 percent, compared to a 5.3 percent gain in the previous quarter. The PCE price index grew 4.9 percent excluding food and energy expenses, compared to 4.6 percent overall.
Personal Income
In the fourth quarter, current-dollar personal income climbed by $106.3 billion, compared to $127.9 billion in the third quarter. Increases in compensation (driven by private earnings and salaries), personal income receipts on assets, and rental income partially offset a decline in personal current transfer receipts (particularly, government social assistance) (table 8). Following the end of pandemic-related unemployment programs, the fall in government social benefits was more than offset by a decrease in unemployment insurance.
In the fourth quarter, disposable personal income grew $14.1 billion, or 0.3 percent, compared to $36.7 billion, or 0.8 percent, in the third quarter. Real disposable personal income fell 5.8%, compared to a 4.3 percent drop in the previous quarter.
In the fourth quarter, personal savings totaled $1.34 trillion, compared to $1.72 trillion in the third quarter. In the fourth quarter, the personal saving rate (savings as a percentage of disposable personal income) was 7.4 percent, down from 9.5 percent in the third quarter.
GDP for 2021
In 2021, real GDP climbed 5.7 percent (from the 2020 annual level to the 2021 annual level), compared to a 3.4 percent fall in 2020. (table 1). In 2021, all major subcomponents of real GDP increased, led by PCE, nonresidential fixed investment, exports, residential fixed investment, and private inventory investment. Imports have risen (table 2).
PCE increased as both products and services increased in value. “Other” nondurable items (including games and toys as well as medications), apparel and footwear, and recreational goods and automobiles were the major contributors within goods. Food services and accommodations, as well as health care, were the most significant contributors to services. Increases in equipment (dominated by information processing equipment) and intellectual property items (driven by software as well as research and development) partially offset a reduction in structures in nonresidential fixed investment (widespread across most categories). The rise in exports was due to an increase in products (mostly non-automotive capital goods), which was somewhat offset by a drop in services (led by travel as well as royalties and license fees). The increase in residential fixed investment was primarily due to the development of new single-family homes. An increase in wholesale commerce led to an increase in private inventory investment (mainly in durable goods industries).
In 2021, current-dollar GDP expanded by 10.0 percent, or $2.10 trillion, to $22.99 trillion, compared to 2.2 percent, or $478.9 billion, in 2020. (tables 1 and 3).
In 2021, the price index for gross domestic purchases climbed by 3.9 percent, compared to 1.2 percent in 2020. (table 4). Similarly, the PCE price index grew 3.9 percent, compared to 1.2 percent in the previous quarter. The PCE price index climbed 3.3 percent excluding food and energy expenses, compared to 1.4 percent overall.
Real GDP rose 5.5 percent from the fourth quarter of 2020 to the fourth quarter of 2021 (table 6), compared to a 2.3 percent fall from the fourth quarter of 2019 to the fourth quarter of 2020.
From the fourth quarter of 2020 to the fourth quarter of 2021, the price index for gross domestic purchases grew 5.5 percent, compared to 1.4 percent from the fourth quarter of 2019 to the fourth quarter of 2020. The PCE price index climbed by 5.5 percent, compared to 1.2 percent for the year. The PCE price index increased 4.6 percent excluding food and energy, compared to 1.4 percent overall.
Source Data for the Advance Estimate
A Technical Note that is issued with the news release on BEA’s website contains information on the source data and major assumptions utilized in the advance estimate. Each version comes with a thorough “Key Source Data and Assumptions” file. Refer to the “Additional Details” section below for information on GDP updates.
What did Obama do after graduating from college?
Obama was born in the Hawaiian city of Honolulu. He worked as a community organizer in Chicago after graduating from Columbia University in 1983. He entered Harvard Law School in 1988 and served as the first black president of the Harvard Law Review. He worked as a civil rights attorney and an academic after graduation, teaching constitutional law at the University of Chicago Law School from 1992 until 2004. Returning to electoral politics, he served in the Illinois Senate from 1997 to 2004, when he ran for the United States Senate. With his March Senate primary victory, his well-received July Democratic National Convention keynote address, and his overwhelming November election to the Senate, Obama gained national notoriety in 2004. He was nominated for president by the Democratic Party in 2008, a year after launching his campaign and following a close primary race against Hillary Clinton. Obama was inaugurated alongside his running mate Joe Biden on January 20, 2009, after defeating Republican contender John McCain in the general election. He was selected the 2009 Nobel Peace Prize recipient nine months later, a choice that received both praise and condemnation.
During Obama’s first two years in office, he signed numerous major measures into law. The Affordable Care Act (ACA or “Obamacare”), which does not offer a public health insurance alternative, the DoddFrank Wall Street Reform and Consumer Protection Act, and the Don’t Ask, Don’t Tell Repeal Act of 2010 are the most important reforms. During the Great Recession, the American Recovery and Reinvestment Act, as well as the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, functioned as economic stimulus. He signed the Budget Control and American Taxpayer Relief Acts after a long discussion over the national debt limit. In terms of foreign policy, he expanded US troop numbers in Afghanistan, reduced nuclear weapons through the New START Treaty between the US and Russia, and halted military engagement in the Iraq War. Anwar al-Awlaki, a US citizen and alleged al-Qaeda operative, was killed in a drone attack by Obama in 2011, sparking outrage. He ordered military intervention in Libya in order to carry out UN Security Council Resolution 1973, which helped to depose Muammar Gaddafi. He also oversaw the military operation that led to Osama bin Laden’s killing.
Obama was sworn in for a second term on January 20, 2013, after defeating Republican opponent Mitt Romney in re-election. During his term, he advocated for LGBT Americans’ inclusiveness. His administration filed filings urging the Supreme Court to declare same-sex marriage bans illegal (United States v. Windsor and Obergefell v. Hodges); after the Court ruled in Obergefell, same-sex marriage was legalized nationwide in 2015. In reaction to the Sandy Hook Elementary School shooting, he fought for gun regulation, indicated support for a ban on assault weapons, and launched sweeping executive orders on global warming and immigration. In foreign policy, he ordered military interventions in Iraq and Syria in response to ISIL gains following the 2011 withdrawal from Iraq, promoted discussions that led to the 2015 Paris Agreement on global climate change, oversaw and eventually apologized for the deadly Kunduz hospital airstrike, drew down U.S. troops in Afghanistan in 2016, initiated sanctions against Russia following the annexation of Crimea and again after interference in the 2016 U.S. elections, and drew down U.S. troops in Afghanistan in 2017. Sonia Sotomayor and Elena Kagan were approved as Supreme Court justices by Obama, while Merrick Garland was denied hearings and a vote by the Republican-controlled Senate. Obama resigned from the presidency on January 20, 2017, yet he still lives in Washington, D.C.
The United States’ international reputation, as well as the American economy, dramatically improved under Obama’s presidency. Obama’s presidency has received largely positive reviews, with historians, political scientists, and the general public consistently ranking him within the top tier of American presidents. Obama has stayed involved in Democratic politics since leaving office, including campaigning for candidates in the 2018 midterm elections, speaking at the 2020 Democratic National Convention, and supporting Biden in the 2020 presidential election. Obama has written three blockbuster novels outside of politics: Dreams from My Father (1995), The Audacity of Hope (2006), and A Promised Land (2008). (2020).
Who was the most effective President?
Historians frequently list Abraham Lincoln, Franklin D. Roosevelt, and George Washington as the three most highly regarded presidents. Recent presidents such as Ronald Reagan and Bill Clinton are frequently ranked among the best in popular opinion polls, although presidential experts and historians do not agree. Because both William Henry Harrison (31 days) and James A. Garfield (200 days, incapacitated after 119 days) died soon after assuming office, they are sometimes overlooked in presidential rankings. Despite the fact that Zachary Taylor only served as president for 16 months, he is frequently included in the list. It’s unclear whether these three received low ratings because of their activities as presidents or because they were in power for such a short period of time that they didn’t accomplish much.
The “dichotomous or schizoid features” of presidents, according to political scientist Walter Dean Burnham, make it difficult to categorize them. “There are presidents who could be called both failures and great or near great (for example, Nixon),” historian Alan Brinkley said. “How can one evaluate such an unusual ruler, so smart and yet morally lacking?” historian and political scientist James MacGregor Burns wondered about Nixon. It’s also unclear if absolute rankings matter much, especially for presidents in the middle. The Times’ US editor, Gerard Baker, writes, “On a chart, the 42 American presidents fall into a well-known Bell-curve or normal distribution, with a few standouts, a few duds, and a lot of so-sos. In all honesty, I couldn’t claim that number 13 on the list is significantly better than number 30.”
In 2021, what was the GDP?
In addition to updated fourth-quarter projections, today’s announcement includes revised third-quarter 2021 wages and salaries, personal taxes, and government social insurance contributions, all based on new data from the Bureau of Labor Statistics Quarterly Census of Employment and Wages program. Wages and wages climbed by $306.8 billion in the third quarter, up $27.7 billion from the previous estimate. With the addition of this new statistics, real gross domestic income is now anticipated to have climbed 6.4 percent in the third quarter, a 0.6 percentage point gain over the prior estimate.
In 2021, real GDP climbed by 5.7 percent, unchanged from the previous estimate (from the 2020 annual level to the 2021 annual level), compared to a 3.4 percent fall in 2020. (table 1). In 2021, all major components of real GDP increased, led by PCE, nonresidential fixed investment, exports, residential fixed investment, and private inventory investment. Imports have risen (table 2).
In 2021, current-dollar GDP climbed by 10.1 percent (revised), or $2.10 trillion, to $23.00 trillion, compared to 2.2 percent, or $478.9 billion, in 2020. (tables 1 and 3).
In 2021, the price index for gross domestic purchases climbed 3.9 percent, which was unchanged from the previous forecast, compared to 1.2 percent in 2020. (table 4). Similarly, the PCE price index grew 3.9 percent, which was unchanged from the previous estimate, compared to a 1.2 percent gain. With food and energy prices excluded, the PCE price index grew 3.3 percent, unchanged from the previous estimate, compared to 1.4 percent.
Real GDP grew 5.6 (revised) percent from the fourth quarter of 2020 to the fourth quarter of 2021 (table 6), compared to a fall of 2.3 percent from the fourth quarter of 2019 to the fourth quarter of 2020.
From the fourth quarter of 2020 to the fourth quarter of 2021, the price index for gross domestic purchases climbed 5.6 percent (revised), compared to 1.4 percent from the fourth quarter of 2019 to the fourth quarter of 2020. The PCE price index grew 5.5 percent, unchanged from the previous estimate, versus a 1.2 percent increase. The PCE price index grew 4.6 percent excluding food and energy, which was unchanged from the previous estimate, compared to 1.4 percent.
In 2021, which country will have the greatest GDP?
What are the world’s largest economies? According to the International Monetary Fund, the following countries have the greatest nominal GDP in the world:
What will China’s GDP be in 2021?
According to GDP statistics from 2021, China’s most productive provinces and cities are listed below. According to the National Bureau of Statistics, China’s GDP in 2021 was RMB 114.4 trillion (US$17.7 trillion), up around RMB 13 trillion (US$3 trillion) from 2020, or 8.1 percent year-on-year growth (NBS).
How much did the economy contract in 2009?
The Great Recession lasted from December 2007 to June 2009, making it the longest downturn since World War II. The Great Recession was particularly painful in various ways, despite its short duration. From its peak in 2007Q4 to its bottom in 2009Q2, real gross domestic product (GDP) plummeted 4.3 percent, the greatest drop in the postwar era (based on data as of October 2013). The unemployment rate grew from 5% in December 2007 to 9.5 percent in June 2009, before peaking at 10% in October 2009.
The financial repercussions of the Great Recession were also disproportionate: home prices plummeted 30% on average from their peak in mid-2006 to mid-2009, while the S&P 500 index dropped 57% from its peak in October 2007 to its trough in March 2009. The net worth of US individuals and charity organizations dropped from around $69 trillion in 2007 to around $55 trillion in 2009.
As the financial crisis and recession worsened, worldwide policies aimed at reviving economic growth were enacted. Like many other countries, the United States enacted economic stimulus measures that included a variety of government expenditures and tax cuts. The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 were two of these projects.
The Federal Reserve’s response to the financial crisis varied over time and included a variety of unconventional approaches. Initially, the Federal Reserve used “conventional” policy actions by lowering the federal funds rate from 5.25 percent in September 2007 to a range of 0-0.25 percent in December 2008, with the majority of the drop taking place between January and March 2008 and September and December 2008. The significant drop in those periods represented a significant downgrading in the economic outlook, as well as increasing downside risks to output and inflation (including the risk of deflation).
By December 2008, the federal funds rate had reached its effective lower bound, and the FOMC had begun to utilize its policy statement to provide future guidance for the rate. The phrasing mentioned keeping the rate at historically low levels “for some time” and later “for an extended period” (Board of Governors 2008). (Board of Governors 2009a). The goal of this guidance was to provide monetary stimulus through lowering the term structure of interest rates, raising inflation expectations (or lowering the likelihood of deflation), and lowering real interest rates. With the sluggish and shaky recovery from the Great Recession, the forward guidance was tightened by adding more explicit conditionality on specific economic variables such as inflation “low rates of resource utilization, stable inflation expectations, and tame inflation trends” (Board of Governors 2009b). Following that, in August 2011, the explicit calendar guidance of “At least through mid-2013, the federal funds rate will remain at exceptionally low levels,” followed by economic-threshold-based guidance for raising the funds rate from its zero lower bound, with the thresholds based on the unemployment rate and inflationary conditions (Board of Governors 2012). This forward guidance is an extension of the Federal Reserve’s conventional approach of influencing the funds rate’s current and future direction.
The Fed pursued two more types of policy in addition to forward guidance “During the Great Recession, unorthodox” policy initiatives were taken. Credit easing programs, as explored in more detail in “Federal Reserve Credit Programs During the Meltdown,” were one set of unorthodox policies that aimed to facilitate credit flows and lower credit costs.
The large scale asset purchase (LSAP) programs were another set of non-traditional policies. The asset purchases were done with the federal funds rate near zero to help lower longer-term public and private borrowing rates. The Federal Reserve said in November 2008 that it would buy US agency mortgage-backed securities (MBS) and debt issued by housing-related US government agencies (Fannie Mae, Freddie Mac, and the Federal Home Loan banks). 1 The asset selection was made in part to lower the cost and increase the availability of finance for home purchases. These purchases aided the housing market, which was at the heart of the crisis and recession, as well as improving broader financial conditions. The Fed initially planned to acquire up to $500 billion in agency MBS and $100 billion in agency debt, with the program being expanded in March 2009 and finished in 2010. The FOMC also announced a $300 billion program to buy longer-term Treasury securities in March 2009, which was completed in October 2009, just after the Great Recession ended, according to the National Bureau of Economic Research. The Federal Reserve purchased approximately $1.75 trillion of longer-term assets under these programs and their expansions (commonly known as QE1), with the size of the Federal Reserve’s balance sheet increasing by slightly less because some securities on the balance sheet were maturing at the same time.
However, real GDP is only a little over 4.5 percent above its prior peak as of this writing in 2013, and the jobless rate remains at 7.3 percent. With the federal funds rate at zero and the current recovery slow and sluggish, the Federal Reserve’s monetary policy plan has evolved in an attempt to stimulate the economy and meet its statutory mandate. The Fed has continued to change its communication policies and implement more LSAP programs since the end of the Great Recession, including a $600 billion Treasuries-only purchase program in 2010-11 (often known as QE2) and an outcome-based purchase program that began in September 2012. (in addition, there was a maturity extension program in 2011-12 where the Fed sold shorter-maturity Treasury securities and purchased longer-term Treasuries). Furthermore, the increasing attention on financial stability and regulatory reform, the economic consequences of the European sovereign debt crisis, and the restricted prospects for global growth in 2013 and 2014 reflect how the Great Recession’s fallout is still being felt today.
Why did the economy contract in 2009?
The credit crunch (2007-08), in which the global banking system ran out of funds, caused a drop in confidence and bank lending, was the fundamental cause of the Great Recession. The causes of the credit crunch were complex, but here’s a quick rundown.
- Sub-prime mortgage loans increased dramatically in the United States between 2000 and 2007. These mortgages were extremely hazardous, but there was a lot of ‘irrational exuberance’ and the expectation that housing values would continue to rise.
- These ‘risky mortgage bundles’ were sold to banks all around the world by US mortgage businesses. (Despite the fact that they were extremely dangerous, credit rating agencies gave them AAA ratings.)
- Interest rates in the United States began to rise about 2005, and homeowners in the United States began to fail on these riskier mortgages.
- Banks in the United States lost money, but banks all around the world later discovered that the’safe’ mortgage packages they purchased were actually worthless. Many banks around the world saw their liquidity and asset values plummet.
- Financial instability has caused a drop in consumer and business confidence.
- Because of overvalued exchange rates and high bond yields in Europe, the single currency has generated extra challenges.
- Great restraint. From 2000 to 2007, the economy grew rapidly, inflation was low, and unemployment was low. Central banks seemed to be effective in achieving their goals of low inflation and economic stability. However, beneath the surface of macroeconomic stability, credit and financial markets were becoming increasingly unstable.
- There is a housing bubble. House prices in many countries have risen rapidly. House prices increased faster than inflation and salaries. A rise in bank lending and a strong level of confidence aided the housing bubble. Several countries, including Ireland and Spain, saw a surge in home construction.
- Loans that aren’t good. Banks became increasingly aggressive and willing to take risks in lending in the run-up to the credit crunch. Banks and mortgage businesses, particularly in the United States, relaxed their lending restrictions. Many homeowners received big mortgages with few checks on their ability to pay them back. People, on the other hand, were stuck with mortgages they couldn’t afford during the economic collapse.
- Repackaged and resold bad loans These “bad” mortgage loans were sold to financial institutions all around the world. Many UK and European banks, for example, bought these mortgage bundles (CDOs) from the US and were so exposed to any possible losses in the US housing market.
- The real estate bubble burst. The housing market bubble in the United States crashed in 2006. House prices began to decline, and mortgage defaults increased. Banks began to realize that the US mortgage defaults had cost them a large amount of money.
- Banks are cash-strapped. The size of bank losses began to grow, making it more difficult for banks to borrow money on the money markets. As a result, banks cut back on lending and mortgages. Because banks were losing money, obtaining credit and liquidity became difficult. Some banks lost so much money that they ran out of cash. The government had to bail out large banks in various nations, including the United Kingdom, Ireland, and the United States. However, the realization that banks were cash-strapped undermined consumer and investor trust. Lower spending and investment were the result of the drop in confidence.
- Oil prices have risen. Oil prices also reached a high point in 2008. This made things more problematic because it resulted in cost-push inflation. Central banks were more hesitant to decrease interest rates as a result of this cost-push inflation. Increased oil costs also reduced discretionary income, resulting in lower spending. Oil prices usually fall during a recession. However, rising oil prices were seen as a result of rising demand in China and India, even as Europe and the United States slid into recession. Another factor lowering demand was high energy and commodity prices.
The impact of the credit crunch and recession
- In 2008, the real GDP of all major economies fell precipitously. Normal bank lending was substantially hampered by the banking crisis. As a result, investment and consumer expenditure fell, resulting in a substantial reduction in real GDP.
- Another aspect that contributed to the recession was the drop in property values. Higher consumer spending was fueled by growing property prices (and wealth) during the boom years. When house values fell, many homeowners found themselves in a negative equity situation. As a result, they reduced their spending and were no longer able to rely on re-mortgaging to obtain equity withdrawal.
- Because of the worldwide scope of the crisis, there was a decline in global trade. As a result of the global crisis, countries suffered a reduction in exports.
- Debt owed by the government. The recession caused a significant increase in government debt. Many European governments sought to cut spending as a result of this, ushering in a period of ‘austerity.’
- The European Union is experiencing a crisis. Bond rates in the Eurozone rose in 2010-12, partially due to the recession and partly due to the lack of a Central Bank prepared to assist.
Response to the great recession
- Banks are being rescued. To begin with, governments felt compelled to engage in the banking sector in order to prevent banks and financial organizations from failing. However, bailing out individuals who were blamed for the crisis was met with some skepticism. In 2008, the United States opted to let Lehman Brothers fail. This resulted in a significant loss of confidence. Following the fear that ensued, governments realized they could not allow this to happen again. In the United Kingdom, the government intervened to save big banks like Northern Rock and Lloyds TSB.
- Interest rate reductions. Central banks reduced interest rates to historic lows in the second part of 2008 and early 2009. The Bank of England dropped interest rates from 5% to 0.5 percent in the United Kingdom. A significant reduction in interest rates would usually make borrowing less expensive and boost consumption and investment. (For example, when the UK lowered interest rates in 1992, the economy soon recovered.) Cuts in interest rates, on the other hand, were less successful during this time.
- Fiscal policy that is expansionary. Because government tax income vanished during the harsh recession, budget deficits skyrocketed. This was especially obvious in countries that rely on stamp duty and finance-related taxes. However, budgetary expansion was moderate in the United Kingdom and the United States. VAT was temporarily reduced in the United Kingdom. There was also a moderate fiscal boost in the United States.
- It’s worth mentioning that, in contrast to the Great Depression of the 1930s, the Great Recession avoided two things.
- A large number of bank failures were avoided (In the 1930s, in the US over 500 commercial banks went bankrupt)
- There was no significant trade war. In the 1930s, governments fought to defend domestic industries by waging a tariff war.