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.
What triggered the 2008 Great Recession?
The Great Recession, which ran from December 2007 to June 2009, was one of the worst economic downturns in US history. The economic crisis was precipitated by the collapse of the housing market, which was fueled by low interest rates, cheap lending, poor regulation, and hazardous subprime mortgages.
What triggered the Great Recession of 2000?
Reasons and causes: The dotcom bubble burst, the 9/11 terrorist attacks, and a series of accounting scandals at major U.S. firms all contributed to the economy’s relatively slight decline.
What was the worst economic downturn in US history?
In America’s financial history, there have been roughly 50 notable national economic falls, some more severe than others. A recession, not to be confused with an economic depression, is defined as a drop in real gross domestic product (GDP) for a period of six months or two three-month quarters. Negative swings in employment, manufacturing, retail sales, and income, in addition to a drop in GDP, are other major indicators of a recession. The National Bureau of Economic Research establishes recession dates.
The causes of America’s previous economic downturns are numerous and complex. Many were the result of the Federal Reserve’s efforts to keep inflation under control, while others were the result of stock market crashes and corrections. One was even triggered by a single man, Henry Ford, who shut down his factories in the late 1920s to switch from Model T to Model A manufacturing. During the six-month shutdown, almost 60,000 workers lost their jobs, putting a temporary halt to the otherwise “roaring” ’20s.
The stock market suffered massive losses during the two largest recessions in American history, the Great Depression of the early 1930s and the Great Recession of the late 2000s, while unemployment rose to 24.9 percent during the Great Depression.
Each slide includes information on what may have caused the downturn as well as what happened to aid the economy’s recovery. The key variables in pulling the country out of recession have been adaptive fiscal policies, transitions from peace to war, and stimulus programs.
Continue reading to learn more about every recession in American history, as well as how the country dealt with them.
Is there going to be a recession in 2021?
The US economy will have a recession, but not until 2022. More business cycles will result as a result of Federal Reserve policy, which many enterprises are unprepared for. The decline isn’t expected until 2022, but it might happen as soon as 2023.
Who was to blame for the financial crisis of 2008?
Richard Fuld, CEO of Lehman Brothers Richard “Dick” Fuld’s name was synonymous with the financial crisis as the last CEO of Lehman Brothers. He guided Lehman into subprime mortgages, establishing the investment bank as a leader in the packaging of debt into bonds that could be sold to investors.
What was the market’s drop in 2008?
On September 29, 2008, the stock market crash occurred. In intraday trading, the Dow Jones Industrial Average dropped 777.68 points. It was the greatest point decrease in history until the stock market crash of March 2020, which coincided with the onset of the COVID-19 pandemic.
Is a recession every seven years?
“Recessions follow expansions as nights follow days,” said Ruchir Sharma, Morgan Stanley Investment Management’s head of emerging markets and global macro. “Over the previous 50 years, we’ve had a worldwide recession once every seven to eight years.”
How many recessions has the United States experienced?
A recession is defined as a two-quarters or longer decline in economic growth as measured by the gross domestic product (GDP). Since World War II and up until the COVID-19 epidemic, the US economy has endured 12 different recessions, beginning with an eight-month depression in 1945 and ending with the longest run of economic expansion on record.
Recessions in the United States have lasted an average of 10 months, while expansions have averaged 57 months.
What happened during the financial crisis of 2008?
In 2008, the stock market plummeted. The Dow had one of the most significant point declines in history. Congress passed the Struggling Asset Relief Scheme (TARP) to empower the US Treasury to implement a major rescue program for troubled banks. The goal was to avoid a national and global economic meltdown.
How did the recession of 2001 end?
After the comparatively mild 1990 recession ended in early 1991, the country’s jobless rate reached a late high of 7.8% in mid-1992. Large layoffs in defense-related businesses initially hindered job development. Payrolls, on the other hand, surged in 1992 and grew rapidly through 2000.
During the dot-com bubble in the late 1990s, there were predictions that the bubble would burst. Following the October 27, 1997 mini-crash, which occurred in the aftermath of the 1997 Asian financial crisis, predictions of a future burst intensified. During the first several months of 1998, this created an unstable economic climate. However, things improved, and between June 1999 and May 2000, the Federal Reserve hiked interest rates six times in an attempt to calm the economy and create a smooth landing. The NASDAQ fall in March 2000 was the catalyst for the stock market bubble to explode. GNP growth slowed significantly in the third quarter of 2000, reaching its lowest level since a contraction in the first quarter of 1992.
According to the National Bureau of Economic Research (NBER), a private, nonprofit, nonpartisan institution tasked with assessing economic recessions, the US economy was in recession from March to November 2001, a period of eight months during the start of President George W. Bush’s presidency. The Business Cycle Dating Committee of the National Bureau of Economic Research estimated that the US economy peaked in March 2001. A peak signals the conclusion of an expansion and the start of a downturn. The conclusion that the growth that began in March 1991 ended in March 2001 and a recession began is thus a conclusion that the expansion that began in March 1991 ended in March 2001. The expansion lasted exactly ten years, making it the longest in NBER history.
However, economic conditions did not meet the conventional shorthand definition of recession, which is “a decrease in a country’s real gross domestic product in two or more consecutive quarters,” causing some confusion regarding how to determine when a recession began and ended.
The NBER’s Economic Cycle Dating Committee (BCDC) determines peaks and troughs in business activity using monthly, rather than quarterly, indices, as seen by the fact that starting and ending dates are given by month and year, not quarters. However, a dispute over the exact dates of the recession led Republicans to label it the “Clinton Recession” if it could be linked to President Bill Clinton’s final term. As more and more definitive evidence became available, BCDC members indicated that they would be open to reviewing the dates of the recession. Martin Feldstein, President of the National Bureau of Economic Research, stated in early 2004:
The new data clearly shows that our March timeframe for the start of the recession was far too late. Before making a final decision, we need to wait for more monthly statistics. We won’t be able to make a decision until we get further information.
From 2000 to 2001, the Federal Reserve raised interest rates in order to preserve the economy from an inflated stock market. A recession would have started in March 2000, when the NASDAQ plummeted following the fall of the dot-com boom, if the stock market were used as an unofficial benchmark. The Dow Jones Industrial Average escaped the NASDAQ’s meltdown largely untouched until the September 11, 2001 attacks, when it suffered its greatest one-day point loss and worst one-week loss in history. After a brief recovery, the market crashed again in the final two quarters of 2002. The market ultimately recovered in the final three quarters of 2003, agreeing with unemployment figures that a recession defined in this approach would have lasted from 2001 to 2003.
According to the Labor Department, 1.735 million jobs were lost in 2001, with another 508,000 positions lost in 2002. A total of 105,000 jobs were added in 2003. Unemployment increased from 4.2 percent in February 2001 to 5.5 percent in November 2001, but did not reach a peak until June 2003, when it reached 6.3 percent, before falling to 5% by mid-2005.