Great Recession

The Great Recession was a big drop in how much money and business people were doing all around the world. It happened mostly in places like western world from late 2007 to mid-2009. This time was very hard for many countries and was one of the worst since the Great Depression in the 1930s.

It started because of problems in the way money was handled, especially when many people in the United States bought houses they couldn’t really afford. When house prices went down and people couldn’t pay their loans, big banks lost a lot of money. This made it hard for banks to lend money, so businesses and families couldn’t spend or borrow as much.

The recession hurt some parts of the world more than others. Places like North America, South America, and Europe had very tough times. But countries like China, India, and Indonesia kept growing even during this hard time. Overall, it was a very important event that showed how connected the world’s economies really are.

Terminology

There are two ways people talk about an "economic recession." One way is to simply mean a time when the economy is doing worse and life is harder for many people. The other way is a special rule used by economists. This rule says a recession is when the amount of goods and services a country makes, called GDP, goes down for at least two years in a row.

In the United States, this particular tough time ended in the middle of 2009. Some people think calling it "The Great Recession" isn’t quite right. They believe it was so serious that it should have a stronger name, like "The Lesser Depression" or "The Great Deflation."

Overview

The Great Recession was a big economic downturn that happened around the world from late 2007 to mid-2009. It was especially tough in western countries and was considered the worst since the Great Depression in the 1930s.

Before the recession, many prices for things like houses went up a lot, and many people borrowed too much money. When the housing market crashed, many people could not pay back their loans. This caused big problems for banks and led to a loss of trust in the financial system. As a result, many people lost their jobs, and the value of many things went down. Governments tried to help by putting money into the economy to make things better.

Causes

The Great Recession was a time when economies around the world, especially in western countries, faced a big drop in activity. It happened from late 2007 to mid-2009 and was linked to a big financial crisis in 2008. This was considered one of the worst economic problems since the Great Depression in the 1930s.

The U.S. Financial Crisis Inquiry Commission found several reasons for the crisis. These included problems with financial rules, risky behavior by banks, too much borrowing by families and big companies, and leaders who weren’t ready for such a crisis. Different groups had different ideas about what caused it. Some pointed to housing policies, while others talked about how some banks weren’t properly watched by regulators.

There were also many ideas about why the recession happened. Some believed it was because of a big drop in housing prices, which made it hard for people to pay their loans. Others thought it was because families borrowed too much money over many years. Some said that government rules pushed banks to lend money to people who couldn’t really afford it, leading to big drops in house prices. Wealthier people buying and selling houses also played a part in creating a bubble in house prices that later burst.

The flow of money from other countries into the U.S. also helped create a big bubble in housing prices. When these prices fell, many people couldn’t pay their loans, and this caused big problems in the financial system. Some experts had warned about these problems before they happened, noticing that housing prices were getting too high and might drop.

Many parts of the world had bubbles in real estate prices, meaning prices were much higher than they should be. When these bubbles burst, prices dropped a lot, and many people owed more money than their houses were worth. This made it hard for banks and made the financial system very unstable.

Effects

Main article: Effects of the Great Recession

The Great Recession had a big impact on the United States. From December 2007 to June 2009, the country faced serious economic problems. Important measures like jobs, money, and housing took many years to recover. For example, jobs didn’t return to normal levels until 2014, and unemployment didn’t go back down until 2016.

Many people and businesses had to pay off debts instead of spending money, which made the economy slower to improve. The government tried to help, but it wasn’t always enough. Some people were upset about money given to big banks, which led to changes in politics and new groups forming.

The crisis also affected Europe. Some countries had to give money to their banks, which made their debts bigger. Many places cut spending to try to save money, but this often made things worse. Unemployment went up in several countries, and some saw their economies grow very slowly.

Some countries, like Poland, did not have a recession at all. They had strong economies for many reasons, like good government policies and strong trade. Other countries like India, China, and Australia also managed to avoid the worst effects of the crisis.

Timeline of effects

Main article: Timeline of the Great Recession

The Great Recession began in late 2007 and lasted until mid-2009. It was a tough time for many countries around the world, especially in Western nations.

At the start, only a few countries were affected. By early 2009, most of the world's economies were struggling. This period was one of the worst economic times since the 1930s. Some countries, like China, managed to avoid the worst of it, while others, like Ukraine, had very sharp drops in their economies. Japan also faced serious economic problems during this time.

Political instability related to the economic crisis

In February 2009, leaders in the United States added a special economic report to the daily updates they receive. This change happened because experts believed the financial problems of 2008 could cause big problems around the world.

Reports from March 2009 showed that many countries were facing trouble because of the economic problems. Some leaders worried that if the bad economy lasted too long, it could cause big changes in governments. People in many places started to protest because they were unhappy with how things were going.

For example, in Iceland, people protested so much that the government had to hold elections earlier than planned. In France, many people marched against the president’s economic policies. In Latvia, a protest turned into a clash between people and police. In Greece, a big strike shut down schools and airports. There were also protests in other countries like Lithuania, Russia, and China. Later, in the United States, the Occupy Wall Street protest began and inspired similar movements in other places.

In Spain, economic problems led to more support for groups that wanted their region to become independent. In Catalonia, a big march for independence took place in September 2012, with about 1.5 million people joining.

Policy responses

Main article: National fiscal policy responses to the Great Recession

See also: 2008–2009 Keynesian resurgence

The 2008 financial crisis caused many countries to take special steps to help their economies. Leaders used different plans to try to bring growth back. Big countries like China, the United States, and the European Union all made plans to support their people and businesses.

In the United States, the government passed laws to help banks and give money to people who needed it. The leader at the time, Barack Obama, signed a big plan to spend money and cut taxes to help the economy. The country's central bank also helped by making borrowing cheaper and putting more money into the economy.

In China, leaders cut rates to make borrowing easier and spent a lot of money on building things and helping people. This helped China stay strong even when other places were struggling.

Other countries, like those in Europe, also made plans to help their banks and economies. Leaders from many countries met to talk about how to work together to fix the problems. They promised to help each other and keep trading fairly.

Policy recommendations

The IMF said in September 2010 that the 2008 financial crisis would not fully end without a big drop in unemployment, as many people around the world lost their jobs. They told governments to help people stay safe and create new jobs, even when they felt they needed to spend less. They also suggested that governments should help people learn new skills.

Some banks started raising interest rates after the recession began. The Bank of Israel was the first, raising rates in August 2009. On October 6, 2009, Australia raised its rates first among big economies. Later, Norway and India also raised rates in March 2010. Finally, in November 2017, the Bank of England raised rates to try to control prices.

Further information: Corporate debt bubble

Comparisons with the Great Depression

Main article: Comparisons between the Great Recession and the Great Depression

In 2009, leaders at the IMF warned that some countries needed to make smart choices to prevent the recession from becoming worse. They noted that unlike earlier tough times, this slowdown affected almost everywhere at once because countries are more connected now. These kinds of worldwide slowdowns usually take longer to fix.

An IMF expert mentioned that many people were staying out of work for a long time, which was unusually high, similar to times long ago. The IMF also talked about how differences in wealth in some countries might have played a part in why people were spending less money. The last time wealth was shared so unevenly was around the year 1929.