Jump to navigation Jump to search This article is about the global economic downturn during the early 21st century. Not trade forex like a pro pdf editor be confused with Great Depression.
The Great Recession was a period of general economic decline observed in world markets during the late 2000s and early 2010s. The scale and timing of the recession varied from country to country. The recession was not felt evenly around the world. Whereas most of the world’s developed economies, particularly in North America and Europe, fell into a definitive recession, many of the newer developed economies suffered far less impact, particularly China and India whose economies grew substantially during this period. The Great Recession met the IMF criteria for being a global recession only in the single calendar year 2009. December 2007 and ended in June 2009, and thus extended over eighteen months. The years leading up to the crisis were characterized by an exorbitant rise in asset prices and associated boom in economic demand.
US mortgage-backed securities, which had risks that were hard to assess, were marketed around the world, as they offered higher yields than U. Many of these securities were backed by subprime mortgages, which collapsed in value when the U. 2006 and homeowners began to default on their mortgage payments in large numbers starting in 2007. The emergence of sub-prime loan losses in 2007 began the crisis and exposed other risky loans and over-inflated asset prices. With loan losses mounting and the fall of Lehman Brothers on September 15, 2008, a major panic broke out on the inter-bank loan market. The global recession that followed resulted in a sharp drop in international trade, rising unemployment and slumping commodity prices. Governments and central banks responded with fiscal and monetary policies to stimulate national economies and reduce financial system risks.
The recession has renewed interest in Keynesian economic ideas on how to combat recessionary conditions. The distribution of household incomes in the United States has become more unequal during the post-2008 economic recovery. The majority report provided by U. Financial Crisis Inquiry Commission, composed of six Democratic and four Republican appointees, reported its findings in January 2011. There were two Republican dissenting FCIC reports. One of them, signed by three Republican appointees, concluded that there were multiple causes.
In his separate dissent to the majority and minority opinions of the FCIC, Commissioner Peter J. During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. There are several “narratives” attempting to place the causes of the recession into context, with overlapping elements. There was the equivalent of a bank run on the shadow banking system, which includes investment banks and other non-depository financial entities.
This system had grown to rival the depository system in scale yet was not subject to the same regulatory safeguards. Its failure disrupted the flow of credit to consumers and corporations. GDP and consumption enabled by bubble-generated housing wealth also slowed. Wealthy and middle-class house flippers with mid-to-good credit scores created a speculative bubble in house prices, and then wrecked local housing markets and financial institutions after they defaulted on their debt en masse. 1-3 is a hypothesis that growing income inequality and wage stagnation encouraged families to increase their household debt to maintain their desired living standard, fueling the bubble. 5 challenges the popular claim that subprime borrowers with shoddy credit caused the crisis by buying homes they couldn’t afford.
This narrative is supported by new research showing that the biggest growth of mortgage debt during the U. The Economist wrote in July 2012 that the inflow of investment dollars required to fund the U. That deficit was financed by inflows of foreign savings, in particular from East Asia and the Middle East. In May 2008, NPR explained in their Peabody Award winning program “The Giant Pool of Money” that a vast inflow of savings from developing nations flowed into the mortgage market, driving the U. Describing the crisis in Europe, Paul Krugman wrote in February 2012 that: “What we’re basically looking at, then, is a balance of payments problem, in which capital flooded south after the creation of the euro, leading to overvaluation in southern Europe. US household debt relative to disposable income and GDP. Changes in Household Debt as a percentage of GDP for 1989-2016.
Homeowners paying down debt for 2009-2012 was a headwind to the recovery. Economist Carmen Reinhart explained that this behavior tends to slow recoveries from financial crises relative to typical recessions. Another narrative focuses on high levels of private debt in the US economy. The IMF reported in April 2012: “Household debt soared in the years leading up to the downturn. In advanced economies, during the five years preceding 2007, the ratio of household debt to income rose by an average of 39 percentage points, to 138 percent. In Denmark, Iceland, Ireland, the Netherlands, and Norway, debt peaked at more than 200 percent of household income. The onset of the economic crisis took most people by surprise.
The Economist newspaper, writing at the same time, went further, saying “the worldwide rise in house prices is the biggest bubble in history”. Increases in uncertainty can depress investment, or consumption. 2009 recession represents the most striking episode of heightened uncertainty since 1960. Several analysts, such as Peter Wallison and Edward Pinto of the American Enterprise Institute, have asserted that private lenders were encouraged to relax lending standards by government affordable housing policies. 1995 by Henry Cisneros, President Clinton’s HUD Secretary. 5 trillion in the years between 1994 and 2007.