Great Recession
The Great Recession was a period of marked general decline observed in national economies globally, i.e. a recession, that occurred in the late 2000s. The scale and timing of the recession varied from country to country (see map).[1][2] At the time, the International Monetary Fund (IMF) concluded that it was the most severe economic and financial meltdown since the Great Depression. One result was a serious disruption of normal international relations.
For background on financial market events beginning in 2007, see 2007–2008 financial crisis. For the 2020 recession, see COVID-19 recession.Date
December 2007 – June 2009 (c. 1 year; 19 months)
(disputed)
- Real-estate bubbles bursting
- US housing policy
- Limited financial regulation
Impact differed geographically
The causes of the Great Recession include a combination of vulnerabilities that developed in the financial system, along with a series of triggering events that began with the bursting of the United States housing bubble in 2005–2012.[3][4] When housing prices fell and homeowners began to abandon their mortgages, the value of mortgage-backed securities held by investment banks declined in 2007–2008, causing several to collapse or be bailed out in September 2008. This 2007–2008 phase was called the subprime mortgage crisis. The combination of banks unable to provide funds to businesses, and homeowners paying down debt rather than borrowing and spending, resulted in the Great Recession that began in the U.S. officially in December 2007 and lasted until June 2009, thus extending over 19 months.[5][6] As with most other recessions, it appears that no known formal theoretical or empirical model was able to accurately predict the advance of this recession, except for minor signals in the sudden rise of forecast probabilities, which were still well under 50%.[7]
The recession was not felt equally around the world; whereas most of the world's developed economies, particularly in North America, South America and Europe, fell into a severe, sustained recession, many more recently developing economies suffered far less impact, particularly China, India and Indonesia, whose economies grew substantially during this period. Similarly, Oceania suffered minimal impact, in part due to its proximity to Asian markets.
Terminology[edit]
Two senses of the word "recession" exist: one sense referring broadly to "a period of reduced economic activity"[8] and ongoing hardship; and the more precise sense used in economics, which is defined operationally, referring specifically to the contraction phase of a business cycle, with two or more consecutive quarters of GDP contraction (negative GDP growth rate).
Under the academic definition, the recession ended in the United States in June or July 2009.[9][10][11][12]
Journalist Robert Kuttner has argued that 'The Great Recession' is a misnomer. According to Kuttner, "recessions are mild dips in the business cycle that are either self-correcting or soon cured by modest fiscal or monetary stimulus. Because of the continuing deflationary trap, it would be more accurate to call this decade's stagnant economy The Lesser Depression or The Great Deflation."[13]
Policy recommendations[edit]
IMF recommendation[edit]
The IMF stated in September 2010 that the financial crisis would not end without a major decrease in unemployment as hundreds of millions of people were unemployed worldwide. The IMF urged governments to expand social safety nets and to generate job creation even as they are under pressure to cut spending. The IMF also encouraged governments to invest in skills training for the unemployed and even governments of countries, similar to that of Greece, with major debt risk to first focus on long-term economic recovery by creating jobs.[183]