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Meanwhile, Spain, Greece, Ireland, Italy, and Portugal suffered sovereign debt crises that required intervention by the European Union, the European Central Bank, and the International Monetary Fund (IMF) and resulted in the imposition of painful austerity measures. While every effort has been made to follow citation style rules, there may be some discrepancies. The contagion quickly spread to other economies around the world, most notably in Europe. Real GDP bottomed out in the second quarter of 2009 and regained its pre-recession peak in the second quarter of 2011, three and a half years after the initial onset of the official recession. economy officially slipped into recession, spurred particularly by the decline in the housing market and the subprime mortgage crisis and worsened by the collapse of the global financial services firm Lehman Brothers in September 2008. The Great Recession refers to the economic downturn from 2007 to 2009 after the bursting of the U.S. housing bubble and the global financial crisis. For example, the Fed lowered a key interest rate to nearly zero to promote liquidity and, in an unprecedented move, provided banks with a staggering $7.7 trillion of emergency loans in a policy known as quantitative easing. The Great Recession began in December 2007 and ended in June 2009, which makes it the longest recession since World War II. The Great Recession's official end date was June 2009. Critics of the policy response and how it shaped the recovery argue that the tidal wave of liquidity and deficit spending did much to prop up politically connected financial institutions and big business at the expense of ordinary people and may have actually delayed the recovery by tying up real economic resources in industries and activities that deserved to fail and see their assets and resources put in the hands of new owners who could use them to create new businesses and jobs. When interest rates finally began to climb in 2005, demand for housing, even among well-qualified borrowers, declined, causing home prices to fall. Even though it’s often referred to as the Great Recession of 2008, the Select personalised ads. What were the major economic weaknesses that drove the Great Recession? Those who were reemployed after losing a job during the Great Recession, on average, earned 17.5 percent less per week than in their old jobs. The Great Recession essentially wiped out virtually every cent of the new wealth that middle class households had added between 1983 and 2007. Be on the lookout for your Britannica newsletter to get trusted stories delivered right to your inbox. As almost every developed nation saw their economy shrink in 2008 and 2009, China’s grew. The Great Recession is the first authoritative assessment of how the aftershocks of the recession are affecting individuals and families, jobs, earnings and poverty, political and social attitudes, lifestyle and consumption practices, and charitable giving. Nor could they save themselves, as they formerly could, by borrowing against the increased value of their homes or by selling their homes at a profit. The Great Recession was a period between December 2007 and June 2009 that saw the 2008 financial crisis, some of the worst unemployment … All these factors combined to produce and prolong a deep recession in the United States. When President Trump took office in January 2017, he inherited an economy in its 91st month of economic expansion following the end of the Great Recession in June 2009. This failure to regulate included the Fed’s inability to curb toxic mortgage lending. Households headed by younger adults, particularly by persons born in the 1980s, lost the most wealth, measured as a percentage of what had been accumulated by earlier generations in similar age groups. Along with the inundation of liquidity by the Fed, the U.S. Federal government embarked on a massive program of fiscal policy to try to stimulate the economy in the form of the $787 billion in deficit spending under the American Recovery and Reinvestment Act, according to the Congressional Budget Office. Select personalised content. It is considered the most significant downturn since the Great Depression. Perhaps more seriously, the rates on existing adjustable mortgages and even more exotic loans began to reset at much higher rates than many borrowers expected or were led to expect. some of the highest recorded rates of unemployment and home foreclosures in the U.S. Nine facts about the Great Recession and tools for fighting the next downturn. The aggressive monetary policies of the Federal Reserve and other central banks in reaction to the Great Recession, although widely credited with preventing even greater damage to the global economy, have also been criticized for extending the time it took the overall economy to recover and laying the ground work for later recessions. Among those who lost full-time jobs, the negative impact was even greater: they were earning 21.8 percent less. The credit markets that had financed the housing bubble, quickly followed housing prices into a downturn as a credit crisis began unfolding in 2007. From December 2007 to June 2009, the GDP contracted sharply, and then the economy began growing again. Create a personalised ads profile. Losses of wealth and speed of recovery also varied considerably by socioeconomic class prior to the downturn, with the wealthiest groups suffering the least (in percentage terms) and recovering the soonest. The solvency of over-leveraged banks and financial institutions came to a breaking point beginning with the collapse of Bear Stearns in March 2008. The seeds of the Great Recession were planted when the government began Richard Cordray. Great Recession, economic recession that was precipitated in the United States by the financial crisis of 2007–08 and quickly spread to other countries. In response to the Great Recession, unprecedented fiscal, monetary, and regulatory policy was unleashed by federal authorities, which some, but not all, credit with the subsequent recovery. The Great Recession was the most severe economic recession in the United States since the Great Depression of the 1930s. Actively scan device characteristics for identification. Combined with federal policy to encourage home ownership, these low interest rates helped spark a steep boom in real estate and financial markets and a dramatic expansion of the volume of total mortgage debt. As the subprime mortgage market collapsed, many banks found themselves in serious trouble, because a significant portion of their assets had taken the form of subprime loans or bonds created from subprime loans together with less-risky forms of consumer debt (see mortgage-backed security; MBS). Much wealth was lost as U.S. stock prices—represented by the S&P 500 index—fell by 57 percent between 2007 and 2009 (by 2013 the S&P had recovered that loss, and it soon greatly exceeded its 2007 peak). Real median household income did not surpass its pre-recession level until 2016. The term Great Recession applies to both the U.S. recession, officially lasting from December 2007 to June 2009, and the ensuing global recession in 2009. Not only did the government introduce stimulus packages into the financial system, but new financial regulation was also put into place. In the earlier of these two years, the typical American household held, after adjusting for inflation, a modest net worth of $80,200. The recession that began in the late 2000s was, to date, the worst economic downturn in the United States since the Great Depression. The Great Recession refers to the economic downturn from 2007 to 2009 after the bursting of the U.S. housing bubble and the global financial crisis. The original RFP described below provides the overarching rationale for the 30 project awards made in 2011 through early 2012. In the wake of the 2001 recession and the World Trade Center attacks of 9/11/2001, the U.S. Federal Reserve pushed interest rates to the lowest levels seen up to that time in the post-Bretton Woods era in an attempt to maintain economic stability. That was the largest decline since 1984. A global recession is an extended period of economic decline around the world, as defined by the International Monetary Fund (IMF). The Great Recession was the sharp decline in economic activity during the late 2000s. The Dodd-Frank Act enacted in 2010 by President Barack Obama gave the government control of failing financial institutions and the ability to establish consumer protections against predatory lending. During all of this, consumer confidence in the economy was understandably reduced, leading most Americans to curtail their spending in anticipation of harder times ahead, a trend that dealt another blow to business health. significant and persistent drops in both wages and employment. The repeal of the regulation allowed some of the United States' larger banks to merge and form larger institutions. During the American housing boom of the mid-2000s, financial institutions had begun marketing mortgage-backed securities and sophisticated derivative products at unprecedented levels. particularly severe and has endured far longer than most recessions. According to one study, during the first two years after the official end of the recession, from 2009 to 2011, the aggregate net worth of the richest 7 percent of households increased by 28 percent while that of the lower 93 percent declined by 4 percent. The economic effects of the profound recession that struck the United States from December 2007 through June 2009 (aptly dubbed the “Great Recession”) are well known: falling employment, rising unemployment, less consumer spending, and a host of other contractionary consequences, as in other U.S. recessions—but deeper and longer lasting. When did it begin? In all the countries affected by the Great Recession, recovery was slow and uneven, and the broader social consequences of the downturn—including, in the United States, lower fertility rates, historically high levels of student debt, and diminished job prospects among young adults—were expected to linger for many years. (Indeed, many borrowers, both prime and subprime, found themselves “underwater,” meaning that they owed more on their mortgage loans than their homes were worth.) In Latvia, which, along with the other Baltic countries, was also affected by the financial crisis, the country’s GDP shrank by more than 25 percent in 2008–09, and unemployment reached 22 percent during the same period. Updates? As the financial crisis spread from the United States to other countries, particularly in western Europe (where several major banks had invested heavily in American MBSs), so too did the recession. The Great Recession is the first authoritative assessment of how the aftershocks of the recession are affecting individuals and families, jobs, earnings and poverty, political and social attitudes, lifestyle and consumption practices, and charitable giving. Altogether, between late 2007 and early 2009, American households lost an estimated $16 trillion in net worth; one quarter of households lost at least 75 percent of their net worth, and more than half lost at least 25 percent. 2007–. The Great Recession affected many Americans, regardless of age, but it hit millennials particularly hard. While the Great Recession provides relevant takeaways for our current economic downturn, the two events differ in how they started. As millions of people lost their homes, jobs, and savings, the poverty rate in the United States increased, from 12.5 percent in 2007 to more than 15 percent in 2010. They didn't call it the "Great Recession" for nothing. First, the report identified failure on the part of the government to regulate the financial industry. Please refer to the appropriate style manual or other sources if you have any questions. By 2007, this net worth had grown to just under $136,000. Develop and improve products. Next, there were too many financial firms taking on too much risk. An economic collapse is a breakdown of a national, regional, or territorial economy that typically follows or spurs a time of crisis. The term The Great Recession is a play on the term The Great Depression. The act allowed the government some control over financial institutions that were deemed on the cusp of failing and to help put in place consumer protections against predatory lending. While a single event spurred today’s financial decline, the Great Recession resulted from a series of systemic flaws that went unaddressed for years. His subject areas include philosophy, law, social science, politics, political theory, and religion. Beginning in late 2007 and lasting until mid-2009, it was the longest and deepest economic downturn in many countries, including the United States, since the Great Depression (1929–c. Job seekers line up to apply for positions at an American Apparel store April 2, 2009, in New York City. Brian Duignan is a senior editor at Encyclopædia Britannica. Measure ad performance. (The U.S. economic meltdown hastened in the midst of the 2008 presidential election, and…. If unemployment is the single most important indicator of the job market's health, the patient is unquestionably sick. Grab a copy of our NEW encyclopedia for Kids! The Great Recession that followed the 2008 financial crisis is often cited as creating structural employment by permanently destroying certain jobs in some sectors of the economy. These monetary and fiscal policies had the effect of reducing the immediate losses to major financial institutions and large corporations, but by preventing their liquidation they also keep the economy locked in to much of the same economic and organization structure that contributed to the crisis. The latter occurred during the 1930s and featured a gross domestic product (GDP) decline of more than 10% and an unemployment rate that at one point reached 25%. Great Recession, economic recession that was precipitated in the United States by the financial crisis of 2007–08 and quickly spread to other countries. Beginning in late 2007 and lasting until mid-2009, it was the longest and deepest economic downturn in many countries, including the United States, since the Great Depression (1929– c. 1939). However, from 2004 through 2006, the Federal Reserve steadily increased interest rates in an attempt to maintain stable rates of inflation in the economy. 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