The Great Recession (see "Terminology" for
other names) 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 (see map).
The International Monetary Fund (IMF) has
concluded that it had the most severe economic
and financial meltdown ever since the Great
Depression and it is frequently seen as the
second worst downturn of all time.The Great
Recession stemmed from the collapse of the
United States real-estate market in relation
to the global financial crisis of 2007 to
2008 and the U.S. subprime mortgage crisis
of 2007 to 2009, though policies of other
nations contributed as well.
According to the nonprofit National Bureau
of Economic Research (the official arbiter
of U.S. recessions), the recession in the
U.S. began in December 2007 and ended in June
2009, thus extending over 19 months.
The Great Recession resulted in a scarcity
of valuable assets in the market economy and
the collapse of the financial sector (banks)
in the world economy; some banks were bailed
out by the U.S. federal government.The recession
was not felt equally around the world; whereas
most of the world's developed economies, particularly
in North America and Europe, fell into a definitive
recession, many more recently developed economies
suffered far less impact, particularly China
and India, whose economies grew substantially
during this period.
== Terminology ==
Two senses of the word "recession" exist:
one sense referring broadly to "a period of
reduced economic activity" 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.
Under the academic definition, the recession
ended in the United States in June or July
2009.Robert Kuttner argues, "'The Great Recession,'
is a misnomer.
We should stop using it.
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."
== 
Overview ==
The Great Recession met the IMF criteria for
being a global recession only in the single
calendar year 2009.
That IMF definition requires a decline in
annual real world GDP per‑capita.
Despite the fact that quarterly data are being
used as recession definition criteria by all
G20 members, representing 85% of the world
GDP, the International Monetary Fund (IMF)
has decided—in the absence of a complete
data set—not to declare/measure global recessions
according to quarterly GDP data.
The seasonally adjusted PPP‑weighted real
GDP for the G20‑zone, however, is a good
indicator for the world GDP, and it was measured
to have suffered a direct quarter on quarter
decline during the three quarters from Q3‑2008
until Q1‑2009, which more accurately mark
when the recession took place at the global
level.According to the U.S. National Bureau
of Economic Research (the official arbiter
of U.S. recessions) the recession began in
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.
Further, the U.S. shadow banking system (i.e.,
non-depository financial institutions such
as investment banks) had grown to rival the
depository system yet was not subject to the
same regulatory oversight, making it vulnerable
to a bank run.US mortgage-backed securities,
which had risks that were hard to assess,
were marketed around the world, as they offered
higher yields than U.S. government bonds.
Many of these securities were backed by subprime
mortgages, which collapsed in value when the
U.S. housing bubble burst during 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.
There was the equivalent of a bank run on
the shadow banking system, resulting in many
large and well established investment and
commercial banks in the United States and
Europe suffering huge losses and even facing
bankruptcy, resulting in massive public financial
assistance (government bailouts).The global
recession that followed resulted in a sharp
drop in international trade, rising unemployment
and slumping commodity prices.
Several economists predicted that recovery
might not appear until 2011 and that the recession
would be the worst since the Great Depression
of the 1930s.
Economist Paul Krugman once commented on this
as seemingly the beginning of "a second Great
Depression".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.
Economists advise that the stimulus should
be withdrawn as soon as the economies recover
enough to "chart a path to sustainable growth".The
distribution of household incomes in the United
States has become more unequal during the
post-2008 economic recovery.
Income inequality in the United States had
grown from 2005 to 2012 in more than 2 out
of 3 metropolitan areas.
Median household wealth fell 35% in the US,
from $106,591 to $68,839 between 2005 and
2011.
== Causes ==
=== Panel Reports ===
The majority report provided by U.S. Financial
Crisis Inquiry Commission, composed of six
Democratic and four Republican appointees,
reported its findings in January 2011.
It concluded that "the crisis was avoidable
and was caused by:
Widespread failures in financial regulation,
including the Federal Reserve's failure to
stem the tide of toxic mortgages;
Dramatic breakdowns in corporate governance
including too many financial firms acting
recklessly and taking on too much risk;
An explosive mix of excessive borrowing and
risk by households and Wall Street that put
the financial system on a collision course
with crisis;
Key policy makers ill prepared for the crisis,
lacking a full understanding of the financial
system they oversaw; and systemic breaches
in accountability and ethics at all levels."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. Wallison of the American Enterprise
Institute (AEI) primarily blamed U.S. housing
policy, including the actions of Fannie & Freddie,
for the crisis.
He wrote: "When the bubble began to deflate
in mid-2007, the low quality and high risk
loans engendered by government policies failed
in unprecedented numbers."In its "Declaration
of the Summit on Financial Markets and the
World Economy," dated November 15, 2008, leaders
of the Group of 20 cited the following causes:
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.
Policy-makers, regulators and supervisors,
in some advanced countries, did not adequately
appreciate and address the risks building
up in financial markets, keep pace with financial
innovation, or take into account the systemic
ramifications of domestic regulatory actions.
=== Narratives ===
There are several "narratives" attempting
to place the causes of the recession into
context, with overlapping elements.
Five such narratives include:
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.
The U.S. economy was being driven by a housing
bubble.
When it burst, private residential investment
(i.e., housing construction) fell by over
four percent of GDP.
Consumption enabled by bubble-generated housing
wealth also slowed.
This created a gap in annual demand (GDP)
of nearly $1 trillion.
The U.S. government was unwilling to make
up for this private sector shortfall.
Record levels of household debt accumulated
in the decades preceding the crisis resulted
in a balance sheet recession (similar to debt
deflation) once housing prices began falling
in 2006.
Consumers began paying off debt, which reduces
their consumption, slowing down the economy
for an extended period while debt levels are
reduced.
U.S. government policies encouraged home ownership
even for those who could not afford it, contributing
to lax lending standards, unsustainable housing
price increases, and indebtedness.
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.Underlying
narratives #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.
Further, this greater share of income flowing
to the top increased the political power of
business interests, who used that power to
deregulate or limit regulation of the shadow
banking system.Narrative #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.S. housing boom came from
those with good credit scores in the middle
and top of the credit score distribution—and
that these borrowers accounted for a disproportionate
share of defaults.
=== Trade imbalances and debt bubbles ===
The Economist wrote in July 2012 that the
inflow of investment dollars required to fund
the U.S. trade deficit was a major cause of
the housing bubble and financial crisis: "The
trade deficit, less than 1% of GDP in the
early 1990s, hit 6% in 2006.
That deficit was financed by inflows of foreign
savings, in particular from East Asia and
the Middle East.
Much of that money went into dodgy mortgages
to buy overvalued houses, and the financial
crisis was the result."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.S. housing
bubble.
This pool of fixed income savings increased
from around $35 trillion in 2000 to about
$70 trillion by 2008.
NPR explained this money came from various
sources, "[b]ut the main headline is that
all sorts of poor countries became kind of
rich, making things like TVs and selling us
oil.
China, India, Abu Dhabi, Saudi Arabia made
a lot of money and banked it."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."
=== 
Monetary policy ===
Another narrative about the origin has been
focused on the respective parts played by
the public monetary policy (in the US notably)
and by the practices of private financial
institutions.
In the U.S., mortgage funding was unusually
decentralised, opaque, and competitive, and
it is believed that competition between lenders
for revenue and market share contributed to
declining underwriting standards and risky
lending.While Alan Greenspan's role as Chairman
of the Federal Reserve has been widely discussed,
the main point of controversy remains the
lowering of the Federal funds rate to 1% for
more than a year, which, according to Austrian
theorists, injected huge amounts of "easy"
credit-based money into the financial system
and created an unsustainable economic boom),
there is also the argument that Greenspan's
actions in the years 2002–2004 were actually
motivated by the need to take the U.S. economy
out of the early 2000s recession caused by
the bursting of the dot-com bubble—although
by doing so he did not help avert the crisis,
but only postpone it.
=== High private debt levels ===
Another narrative focuses on high levels of
private debt in the US economy.
USA household debt as a percentage of annual
disposable personal income was 127% at the
end of 2007, versus 77% in 1990.
Faced with increasing mortgage payments as
their adjustable rate mortgage payments increased,
households began to default in record numbers,
rendering mortgage-backed securities worthless.
High private debt levels also impact growth
by making recessions deeper and the following
recovery weaker.
Robert Reich claims the amount of debt in
the US economy can be traced to economic inequality,
assuming that middle-class wages remained
stagnant while wealth concentrated at the
top, and households "pull equity from their
homes and overload on debt to maintain living
standards".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.
A surge in household debt to historic highs
also occurred in emerging economies such as
Estonia, Hungary, Latvia, and Lithuania.
The concurrent boom in both house prices and
the stock market meant that household debt
relative to assets held broadly stable, which
masked households' growing exposure to a sharp
fall in asset prices.
When house prices declined, ushering in the
global financial crisis, many households saw
their wealth shrink relative to their debt,
and, with less income and more unemployment,
found it harder to meet mortgage payments.
By the end of 2011, real house prices had
fallen from their peak by about 41% in Ireland,
29% in Iceland, 23% in Spain and the United
States, and 21% in Denmark.
Household defaults, underwater mortgages (where
the loan balance exceeds the house value),
foreclosures, and fire sales are now endemic
to a number of economies.
Household deleveraging by paying off debts
or defaulting on them has begun in some countries.
It has been most pronounced in the United
States, where about two-thirds of the debt
reduction reflects defaults."
=== 
Pre-recession warnings ===
The onset of the economic crisis took most
people by surprise.
A 2009 paper identifies twelve economists
and commentators who, between 2000 and 2006,
predicted a recession based on the collapse
of the then-booming housing market in the
United States: Dean Baker, Wynne Godley, Fred
Harrison, Michael Hudson, Eric Janszen, Med
Jones Steve Keen, Jakob Brøchner Madsen,
Jens Kjaer Sørensen, Kurt Richebächer, Nouriel
Roubini, Peter Schiff, and Robert Shiller.
=== Housing bubbles ===
By 2007, real estate bubbles were still under
way in many parts of the world, especially
in the United States, France, United Kingdom,
Spain, The Netherlands, Australia, United
Arab Emirates, New Zealand, Ireland, Poland,
South Africa, Greece, Bulgaria, Croatia, Norway,
Singapore, South Korea, Sweden, Finland, Argentina,
Baltic states, India, Romania, Ukraine, and
China.
U.S. Federal Reserve Chairman Alan Greenspan
said in mid-2005 that "at a minimum, there's
a little 'froth' [in the U.S. housing market]...it's
hard not to see that there are a lot of local
bubbles".The Economist, writing at the same
time, went further, saying, "[T]he worldwide
rise in house prices is the biggest bubble
in history".
Real estate bubbles are (by definition of
the word "bubble") followed by a price decrease
(also known as a housing price crash) that
can result in many owners holding negative
equity (a mortgage debt higher than the current
value of the property).
=== Ineffective or inappropriate regulation
===
==== Regulations encouraging lax lending standards
====
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.
They cite The Housing and Community Development
Act of 1992, which initially required that
30 percent or more of Fannie's and Freddie's
loan purchases be related to affordable housing.
The legislation gave HUD the power to set
future requirements.
These rose to 42 percent in 1995 and 50 percent
in 2000, and by 2008 (under the G.W. Bush
Administration) a 56 percent minimum was established.
To fulfill the requirements, Fannie Mae and
Freddie Mac established programs to purchase
$5 trillion in affordable housing loans, and
encouraged lenders to relax underwriting standards
to produce those loans.These critics also
cite, as inappropriate regulation, "The National
Homeownership Strategy: Partners in the American
Dream ("Strategy"), which was compiled in
1995 by Henry Cisneros, President Clinton's
HUD Secretary.
In 2001, the independent research company,
Graham Fisher & Company, stated: "While the
underlying initiatives of the [Strategy] were
broad in content, the main theme ... was the
relaxation of credit standards."The Community
Reinvestment Act (CRA) is also identified
as one of the causes of the recession, by
some critics.
They contend that lenders relaxed lending
standards in an effort to meet CRA commitments,
and they note that publicly announced CRA
loan commitments were massive, totaling $4.5
trillion in the years between 1994 and 2007.However,
the Financial Crisis Inquiry Commission (FCIC)
Democratic majority report concluded that
Fannie & Freddie "were not a primary cause"
of the crisis and that CRA was not a factor
in the crisis.
Further, since housing bubbles appeared in
multiple countries in Europe as well, the
FCIC Republican minority dissenting report
also concluded that U.S. housing policies
were not a robust explanation for a wider
global housing bubble.
The hypothesis that a primary cause of the
crisis was U.S. government housing policy
requiring banks to make risky loans has been
widely disputed, with Paul Krugman referring
to it as "imaginary history".One of the other
challenges with blaming government regulations
for essentially forcing banks to make risky
loans is the timing.
Subprime lending increased from around 10%
of mortgage origination historically to about
20% only from 2004-2006, with housing prices
peaking in 2006.
Blaming affordable housing regulations established
in the 1990s for a sudden spike in subprime
origination is problematic at best.
A more proximate government action to the
sudden rise in subprime lending was the SEC
relaxing lending standards for the top investment
banks during an April 2004 meeting with bank
leaders.
These banks increased their risk-taking shortly
thereafter, significantly increasing their
purchases and securitization of lower-quality
mortgages, thus encouraging additional subprime
and Alt-A lending by mortgage companies.
This action by its investment bank competitors
also resulted in Fannie Mae and Freddie Mac
taking on more risk.
==== Derivatives ====
Several sources have noted the failure of
the US government to supervise or even require
transparency of the financial instruments
known as derivatives.
Derivatives such as credit default swaps (CDSs)
were unregulated or barely regulated.
Michael Lewis noted CDSs enabled speculators
to stack bets on the same mortgage securities.
This is analogous to allowing many persons
to buy insurance on the same house.
Speculators that bought CDS protection were
betting significant mortgage security defaults
would occur, while the sellers (such as AIG)
bet they would not.
An unlimited amount could be wagered on the
same housing-related securities, provided
buyers and sellers of the CDS could be found.
When massive defaults occurred on underlying
mortgage securities, companies like AIG that
were selling CDS were unable to perform their
side of the obligation and defaulted; U.S.
taxpayers paid over $100 billion to global
financial institutions to honor AIG obligations,
generating considerable outrage.A 2008 investigative
article in the Washington Post found leading
government officials at the time (Federal
Reserve Board Chairman Alan Greenspan, Treasury
Secretary Robert Rubin, and SEC Chairman Arthur
Levitt) vehemently opposed any regulation
of derivatives.
In 1998, Brooksley E. Born, head of the Commodity
Futures Trading Commission, put forth a policy
paper asking for feedback from regulators,
lobbyists, and legislators on the question
of whether derivatives should be reported,
sold through a central facility, or whether
capital requirements should be required of
their buyers.
Greenspan, Rubin, and Levitt pressured her
to withdraw the paper and Greenspan persuaded
Congress to pass a resolution preventing CFTC
from regulating derivatives for another six
months — when Born's term of office would
expire.
Ultimately, it was the collapse of a specific
kind of derivative, the mortgage-backed security,
that triggered the economic crisis of 2008.
==== Shadow banking system ====
Paul Krugman wrote in 2009 that the run on
the shadow banking system was the fundamental
cause of the crisis.
"As the shadow banking system expanded to
rival or even surpass conventional banking
in importance, politicians and government
officials should have realised that they were
re-creating the kind of financial vulnerability
that made the Great Depression possible – and
they should have responded by extending regulations
and the financial safety net to cover these
new institutions.
Influential figures should have proclaimed
a simple rule: anything that does what a bank
does, anything that has to be rescued in crises
the way banks are, should be regulated like
a bank."
He referred to this lack of controls as "malign
neglect".During 2008, three of the largest
U.S. investment banks either went bankrupt
(Lehman Brothers) or were sold at fire sale
prices to other banks (Bear Stearns and Merrill
Lynch).
The investment banks were not subject to the
more stringent regulations applied to depository
banks.
These failures exacerbated the instability
in the global financial system.
The remaining two investment banks, Morgan
Stanley and Goldman Sachs, potentially facing
failure, opted to become commercial banks,
thereby subjecting themselves to more stringent
regulation but receiving access to credit
via the Federal Reserve.
Further, American International Group (AIG)
had insured mortgage-backed and other securities
but was not required to maintain sufficient
reserves to pay its obligations when debtors
defaulted on these securities.
AIG was contractually required to post additional
collateral with many creditors and counter-parties,
touching off controversy when over $100 billion
of U.S. taxpayer money was paid out to major
global financial institutions on behalf of
AIG.
While this money was legally owed to the banks
by AIG (under agreements made via credit default
swaps purchased from AIG by the institutions),
a number of Congressmen and media members
expressed outrage that taxpayer money was
used to bail out banks.
Economist Gary Gorton wrote in May 2009: Unlike
the historical banking panics of the 19th
and early 20th centuries, the current banking
panic is a wholesale panic, not a retail panic.
In the earlier episodes, depositors ran to
their banks and demanded cash in exchange
for their checking accounts.
Unable to meet those demands, the banking
system became insolvent.
The current panic involved financial firms
"running" on other financial firms by not
renewing sale and repurchase agreements (repo)
or increasing the repo margin ("haircut"),
forcing massive deleveraging, and resulting
in the banking system being insolvent.
The Financial Crisis Inquiry Commission reported
in January 2011: In the early part of the
20th century, we erected a series of protections
– the Federal Reserve as a lender of last
resort, federal deposit insurance, ample regulations
– to provide a bulwark against the panics
that had regularly plagued America's banking
system in the 19th century.
Yet, over the past 30-plus years, we permitted
the growth of a shadow banking system – opaque
and laden with short term debt – that rivaled
the size of the traditional banking system.
Key components of the market – for example,
the multitrillion-dollar repo lending market,
off-balance-sheet entities, and the use of
over-the-counter derivatives – were hidden
from view, without the protections we had
constructed to prevent financial meltdowns.
We had a 21st-century financial system with
19th-century safeguards.
=== Systemic crisis ===
The financial crisis and the recession have
been described as a symptom of another, deeper
crisis by a number of economists.
For example, Ravi Batra argues that growing
inequality of financial capitalism produces
speculative bubbles that burst and result
in depression and major political changes.
Feminist economists Ailsa McKay and Margunn
Bjørnholt argue that the financial crisis
and the response to it revealed a crisis of
ideas in mainstream economics and within the
economics profession, and call for a reshaping
of both the economy, economic theory and the
economics profession.
They argue that such a reshaping should include
new advances within feminist economics and
ecological economics that take as their starting
point the socially responsible, sensible and
accountable subject in creating an economy
and economic theories that fully acknowledge
care for each other as well as the planet.
== Effects ==
=== Effects on the United States ===
The Great Recession had a significant economic
and political impact on the United States.
While the recession technically lasted from
December 2007-June 2009 (the nominal GDP trough),
many important economic variables did not
regain pre-recession (November or Q4 2007)
levels until 2011-2016.
For example, real GDP fell $650 billion (4.3%)
and did not recover its $15 trillion pre-recession
level until Q3 2011.
Household net worth, which reflects the value
of both stock markets and housing prices,
fell $11.5 trillion (17.3%) and did not regain
its pre-recession level of $66.4 trillion
until Q3 2012.
The number of persons with jobs (total non-farm
payrolls) fell 8.6 million (6.2%) and did
not regain the pre-recession level of 138.3
million until May 2014.
The unemployment rate peaked at 10.0% in October
2009 and did not return to its pre-recession
level of 4.7% until May 2016.A key dynamic
slowing the recovery was that both individuals
and businesses paid down debts for several
years, as opposed to borrowing and spending
or investing as had historically been the
case.
This shift to a private sector surplus drove
a sizable government deficit.
However, the federal government held spending
at about $3.5 trillion from fiscal years 2009-2014
(thereby decreasing it as a percent of GDP),
a form of austerity.
Then-Fed Chair Ben Bernanke explained during
November 2012 several of the economic headwinds
that slowed the recovery:
The housing sector did not rebound, as was
the case in prior recession recoveries, as
the sector was severely damaged during the
crisis.
Millions of foreclosures had created a large
surplus of properties and consumers were paying
down their debts rather than purchasing homes.
Credit for borrowing and spending by individuals
(or investing by corporations) was not readily
available as banks paid down their debts.
Restrained government spending following initial
stimulus efforts (i.e., austerity) was not
sufficient to offset private sector weaknesses.On
the political front, widespread anger at banking
bailouts and stimulus measures (begun by President
George W. Bush and continued or expanded by
President Obama) with few consequences for
banking leadership, were a factor in driving
the country politically rightward starting
in 2010.
Examples include the rise of the Tea Party
and the loss of Democratic majorities in subsequent
elections.
President Obama declared the bailout measures
started under the Bush administration and
continued during his administration as completed
and mostly profitable as of December 2014.
As of January 2018, bailout funds had been
fully recovered by the government, when interest
on loans is taken into consideration.
A total of $626B was invested, loaned, or
granted due to various bailout measures, while
$390B had been returned to the Treasury.
The Treasury had earned another $323B in interest
on bailout loans, resulting in an $87B profit.
Some have argued the Great Recession was also
an important factor in the rise of populist
sentiment that resulted in the election of
President Trump in 2016, although his election
also had important identity politics elements.
=== Effects on Europe ===
The 
crisis in Europe generally progressed from
banking system crises to sovereign debt crises,
as many countries elected to bail out their
banking systems using taxpayer money.
Greece was different in that it faced large
public debts rather than problems within its
banking system.
Several countries received bailout packages
from the troika (European Commission, European
Central Bank, International Monetary Fund),
which also implemented a series of emergency
measures.
Many European countries embarked on austerity
programs, reducing their budget deficits relative
to GDP from 2010 to 2011.
For example, according to the CIA World Factbook
Greece improved its budget deficit from 10.4%
GDP in 2010 to 9.6% in 2011.
Iceland, Italy, Ireland, Portugal, France,
and Spain also improved their budget deficits
from 2010 to 2011 relative to GDP.However,
with the exception of Germany, each of these
countries had public-debt-to-GDP ratios that
increased (i.e., worsened) from 2010 to 2011,
as indicated in the chart at right.
Greece's public-debt-to-GDP ratio increased
from 143% in 2010 to 165% in 2011 to 185%
in 2014.
This indicates that despite improving budget
deficits, GDP growth was not sufficient to
support a decline (improvement) in the debt-to-GDP
ratio for these countries during this period.
Eurostat reported that the debt to GDP ratio
for the 17 Euro area countries together was
70.1% in 2008, 79.9% in 2009, 85.3% in 2010,
and 87.2% in 2011.According to the CIA World
Factbook, from 2010 to 2011, the unemployment
rates in Spain, Greece, Italy, Ireland, Portugal,
and the UK increased.
France had no significant changes, while in
Germany and Iceland the unemployment rate
declined.
Eurostat reported that Eurozone unemployment
reached record levels in September 2012 at
11.6%, up from 10.3% the prior year.
Unemployment varied significantly by country.Economist
Martin Wolf analysed the relationship between
cumulative GDP growth from 2008-2012 and total
reduction in budget deficits due to austerity
policies (see chart at right) in several European
countries during April 2012.
He concluded that: "In all, there is no evidence
here that large fiscal contractions [budget
deficit reductions] bring benefits to confidence
and growth that offset the direct effects
of the contractions.
They bring exactly what one would expect:
small contractions bring recessions and big
contractions bring depressions."
Changes in budget balances (deficits or surpluses)
explained approximately 53% of the change
in GDP, according to the equation derived
from the IMF data used in his analysis.Economist
Paul Krugman analysed the relationship between
GDP and reduction in budget deficits for several
European countries in April 2012 and concluded
that austerity was slowing growth, similar
to Martin Wolf.
He also wrote: "... this also implies that
1 euro of austerity yields only about 0.4
euros of reduced deficit, even in the short
run.
No wonder, then, that the whole austerity
enterprise is spiraling into disaster."Britain's
decision to leave the European Union in 2016
has been partly attributed to the after-effects
of the Great Recession on the country.
=== Countries that avoided recession ===
Poland and Slovakia are the only two members
of the European Union to have avoided a GDP
recession during the years affected by the
Great Recession.
As of December 2009, the Polish economy had
not entered recession nor even contracted,
while its IMF 2010 GDP growth forecast of
1.9 percent was expected to be upgraded.
Analysts have identified several causes for
the positive economic development in Poland:
Extremely low levels of bank lending and a
relatively very small mortgage market; the
relatively recent dismantling of EU trade
barriers and the resulting surge in demand
for Polish goods since 2004; Poland being
the recipient of direct EU funding since 2004;
lack of over-dependence on a single export
sector; a tradition of government fiscal responsibility;
a relatively large internal market; the free-floating
Polish zloty; low labour costs attracting
continued foreign direct investment; economic
difficulties at the start of the decade, which
prompted austerity measures in advance of
the world crisis.While India, Uzbekistan,
China, and Iran experienced slowing growth,
they did not enter recessions.
South Korea narrowly avoided technical recession
in the first quarter of 2009.
The International Energy Agency stated in
mid September that South Korea could be the
only large OECD country to avoid recession
for the whole of 2009.
It was the only developed economy to expand
in the first half of 2009.
Australia avoided a technical recession after
experiencing only one quarter of negative
growth in the fourth quarter of 2008, with
GDP returning to positive in the first quarter
of 2009.The financial crisis did not affect
developing countries to a great extent.
Experts see several reasons: Africa was not
affected because it is not fully integrated
in the world market.
Latin America and Asia seemed better prepared,
since they have experienced crises before.
In Latin America, for example, banking laws
and regulations are very stringent.
Bruno Wenn of the German DEG suggests that
Western countries could learn from these countries
when it comes to regulations of financial
markets.
== Timeline of effects ==
The table below displays all national recessions
appearing in 2006-2013 (for the 71 countries
with available data), according to the common
recession definition, saying that a recession
occurred whenever seasonally adjusted real
GDP contracts quarter on quarter, through
minimum two consecutive quarters.
Only 11 out of the 71 listed countries with
quarterly GDP data (Poland, Slovakia, Moldova,
India, China, South Korea, Indonesia, Australia,
Uruguay, Colombia and Bolivia) escaped a recession
in this time period.
The few recessions appearing early in 2006-07
are commonly never associated to be part of
the Great Recession, which is illustrated
by the fact that only two countries (Iceland
and Jamaica) were in recession in Q4-2007.
One year before the maximum, in Q1-2008, only
six countries were in recession (Iceland,
Sweden, Finland, Ireland, Portugal and New
Zealand).
The number of countries in recession was 25
in Q2‑2008, 39 in Q3‑2008 and 53 in Q4‑2008.
At the steepest part of the Great Recession
in Q1‑2009, a total of 59 out of 71 countries
were simultaneously in recession.
The number of countries in recession was 37
in Q2‑2009, 13 in Q3‑2009 and 11 in Q4‑2009.
One year after the maximum, in Q1‑2010,
only seven countries were in recession (Greece,
Croatia, Romania, Iceland, Jamaica, Venezuela
and Belize).
The recession data for the overall G20-zone
(representing 85% of all GWP), depict that
the Great Recession existed as a global recession
throughout Q3‑2008 until Q1‑2009.
Subsequent follow-up recessions in 2010‑2013
were confined to Belize, El Salvador, Paraguay,
Jamaica, Japan, Taiwan, New Zealand and 24
out of 50 European countries (including Greece).
As of October 2014, only five out of the 71
countries with available quarterly data (Cyprus,
Italy, Croatia, Belize and El Salvador), were
still in ongoing recessions.
The many follow-up recessions hitting the
European countries, are commonly referred
to as being direct repercussions of the European
sovereign‑debt crisis.
=== Country specific details about recession
timelines ===
Iceland fell into an economic depression in
2008 following the collapse of its banking
system (see 2008–2011 Icelandic financial
crisis).
By mid-2012 Iceland is regarded as one of
Europe's recovery success stories largely
as a result of a currency devaluation that
has effectively reduced wages by 50%--making
exports more competitive.The following countries
had a recession already starting in the first
quarter of 2008: Latvia, Ireland, New Zealand,
and Sweden.The following countries/territories
had a recession starting in the second quarter
of 2008: Japan, Hong Kong, Singapore, Italy,
Turkey, Germany, United Kingdom, the Eurozone,
the European Union, and OECD.The following
countries/territories had a recession starting
in the third quarter of 2008: United States,
Spain, and Taiwan.The following countries/territories
had a recession starting in the fourth quarter
of 2008: Switzerland.South Korea miraculously
avoided recession with GDP returning positive
at a 0.1% expansion in the first quarter of
2009.Of the seven largest economies in the
world by GDP, only China avoided a recession
in 2008.
In the year to the third quarter of 2008 China
grew by 9%.
Until recently Chinese officials considered
8% GDP growth to be required simply to create
enough jobs for rural people moving to urban
centres.
This figure may more accurately be considered
to be 5–7% now that the main growth in working
population is receding.Ukraine went into technical
depression in January 2009 with a GDP growth
of −20%, when comparing on a monthly basis
with the GDP level in January 2008.
Overall the Ukrainian real GDP fell 14.8%
when comparing the entire part of 2009 with
2008.
When measured quarter-on-quarter by changes
of seasonally adjusted real GDP, Ukraine was
more precisely in recession/depression throughout
the four quarters from Q2-2008 until Q1-2009
(with respective qoq-changes of: -0.1%, -0.5%,
-9.3%, -10.3%), and the two quarters from
Q3-2012 until Q4-2012 (with respective qoq-changes
of: -1.5% and -0.8%).Japan was in recovery
in the middle of the decade 2000s but slipped
back into recession and deflation in 2008.
The recession in Japan intensified in the
fourth quarter of 2008 with a GDP growth of
−12.7%, and deepened further in the first
quarter of 2009 with a GDP growth of −15.2%.
== Political instability related to the economic
crisis ==
On February 26, 2009, an Economic Intelligence
Briefing was added to the daily intelligence
briefings prepared for the President of the
United States.
This addition reflects the assessment of U.S.
intelligence agencies that the global financial
crisis presents a serious threat to international
stability.
Business Week stated in March 2009 that global
political instability is rising fast because
of the global financial crisis and is creating
new challenges that need managing.
The Associated Press reported in March 2009
that: United States "Director of National
Intelligence Dennis Blair has said the economic
weakness could lead to political instability
in many developing nations."
Even some developed countries are seeing political
instability.
NPR reports that David Gordon, a former intelligence
officer who now leads research at the Eurasia
Group, said: "Many, if not most, of the big
countries out there have room to accommodate
economic downturns without having large-scale
political instability if we're in a recession
of normal length.
If you're in a much longer-run downturn, then
all bets are off."Political scientists have
argued that the economic stasis triggered
social churning that got expressed through
protests on a variety of issues across the
developing world.
In Brazil, disaffected youth rallied against
a minor bus-fare hike; in Turkey, they agitated
against the conversion of a park to a mall
and in Israel, they protested against high
rents in Tel Aviv.
In all these cases, the ostensible immediate
cause of the protest was amplified by the
underlying social suffering induced by the
great recession.
In January 2009, the government leaders of
Iceland were forced to call elections two
years early after the people of Iceland staged
mass protests and clashed with the police
because of the government's handling of the
economy.
Hundreds of thousands protested in France
against President Sarkozy's economic policies.
Prompted by the financial crisis in Latvia,
the opposition and trade unions there organised
a rally against the cabinet of premier Ivars
Godmanis.
The rally gathered some 10–20 thousand people.
In the evening the rally turned into a Riot.
The crowd moved to the building of the parliament
and attempted to force their way into it,
but were repelled by the state's police.
In late February many Greeks took part in
a massive general strike because of the economic
situation and they shut down schools, airports,
and many other services in Greece.
Police and protesters clashed in Lithuania
where people protesting the economic conditions
were shot with rubber bullets.
Communists and others rallied in Moscow to
protest the Russian government's economic
plans.In addition to various levels of unrest
in Europe, Asian countries have also seen
various degrees of protest.
Protests have also occurred in China as demands
from the west for exports have been dramatically
reduced and unemployment has increased.
Beyond these initial protests, the protest
movement has grown and continued in 2011.
In late 2011, the Occupy Wall Street protest
took place in the United States, spawning
several offshoots that came to be known as
the Occupy movement.
In 2012 the economic difficulties in Spain
increased support for secession movements.
In Catalonia, support for the secession movement
exceeded.
On September 11, a pro-independence march
drew a crowd that police estimated at 1.5
million.
== Policy responses ==
The financial phase of the crisis led to emergency
interventions in many national financial systems.
As the crisis developed into genuine recession
in many major economies, economic stimulus
meant to revive economic growth became the
most common policy tool.
After having implemented rescue plans for
the banking system, major developed and emerging
countries announced plans to relieve their
economies.
In particular, economic stimulus plans were
announced in China, the United States, and
the European Union.
In the final quarter of 2008, the financial
crisis saw the G-20 group of major economies
assume a new significance as a focus of economic
and financial crisis management.
=== United States policy responses ===
The Federal Reserve, Treasury, and Securities
and Exchange Commission took several steps
on September 19, 2008 to intervene in the
crisis.
To stop the potential run on money market
mutual funds, the Treasury also announced
on September 19, 2008 a new $50 billion program
to insure the investments, similar to the
Federal Deposit Insurance Corporation (FDIC)
program.
Part of the announcements included temporary
exceptions to section 23A and 23B (Regulation
W), allowing financial groups to more easily
share funds within their group.
The exceptions would expire on January 30,
2009, unless extended by the Federal Reserve
Board.The Securities and Exchange Commission
announced termination of short-selling of
799 financial stocks, as well as action against
naked short selling, as part of its reaction
to the mortgage crisis.
In May 2013 as the stock market was hitting
record highs and the housing and employment
markets were improving slightly the prospect
of the Federal Reserve beginning to decrease
its economic stimulus activities began to
enter the projections of investment analysts
and affected global markets.
=== Asia-Pacific policy responses ===
On September 15, 2008, China cut its interest
rate for the first time since 2002.
Indonesia reduced its overnight rate, at which
commercial banks can borrow overnight funds
from the central bank, by two percentage points
to 10.25 percent.
The Reserve Bank of Australia injected nearly
$1.5 billion into the banking system, nearly
three times as much as the market's estimated
requirement.
The Reserve Bank of India added almost $1.32
billion, through a refinance operation, its
biggest in at least a month.On November 9,
2008, the Chinese economic stimulus program,
a RMB¥ 4 trillion ($586 billion) stimulus
package, was announced by the central government
of the People's Republic of China in its biggest
move to stop the global financial crisis from
hitting the world's second largest economy.
A statement on the government's website said
the State Council had approved a plan to invest
4 trillion yuan ($586 billion) in infrastructure
and social welfare by the end of 2010.
The stimulus package was invested in key areas
such as housing, rural infrastructure, transportation,
health and education, environment, industry,
disaster rebuilding, income-building, tax
cuts, and finance.
China's export driven economy is starting
to feel the impact of the economic slowdown
in the United States and Europe, and the government
has already cut key interest rates three times
in less than two months in a bid to spur economic
expansion.
On November 28, 2008, the Ministry of Finance
of the People's Republic of China and the
State Administration of Taxation jointly announced
a rise in export tax rebate rates on some
labour-intensive goods.
These additional tax rebates took place on
December 1, 2008.The stimulus package was
welcomed by world leaders and analysts as
larger than expected and a sign that by boosting
its own economy, China is helping to stabilise
the global economy.
News of the announcement of the stimulus package
sent markets up across the world.
However, Marc Faber claimed that he thought
China was still in recession on January 16.
In Taiwan, the central bank on September 16,
2008, said it would cut its required reserve
ratios for the first time in eight years.
The central bank added $3.59 billion into
the foreign-currency interbank market the
same day.
Bank of Japan pumped $29.3 billion into the
financial system on September 17, 2008, and
the Reserve Bank of Australia added $3.45
billion the same day.In developing and emerging
economies, responses to the global crisis
mainly consisted in low-rates monetary policy
(Asia and the Middle East mainly) coupled
with the depreciation of the currency against
the dollar.
There were also stimulus plans in some Asian
countries, in the Middle East and in Argentina.
In Asia, plans generally amounted to 1 to
3% of GDP, with the notable exception of China,
which announced a plan accounting for 16%
of GDP (6% of GDP per year).
=== European policy responses ===
Until September 2008, European policy measures
were limited to a small number of countries
(Spain and Italy).
In both countries, the measures were dedicated
to households (tax rebates) reform of the
taxation system to support specific sectors
such as housing.
The European Commission proposed a €200
billion stimulus plan to be implemented at
the European level by the countries.
At the beginning of 2009, the UK and Spain
completed their initial plans, while Germany
announced a new plan.
On September 29, 2008, the Belgian, Luxembourg
and Dutch authorities partially nationalised
Fortis.
The German government bailed out Hypo Real
Estate.
On October 8, 2008, the British Government
announced a bank rescue package of around
£500 billion ($850 billion at the time).
The plan comprises three parts.
The first £200 billion would be made in regard
to the banks in liquidity stack.
The second part will consist of the state
government increasing the capital market within
the banks.
Along with this, £50 billion will be made
available if the banks needed it, finally
the government will write off any eligible
lending between the British banks with a limit
to £250 billion.
In early December 2008, German Finance Minister
Peer Steinbrück indicated a lack of belief
in a "Great Rescue Plan" and reluctance to
spend more money addressing the crisis.
In March 2009, The European Union Presidency
confirmed that the EU was at the time strongly
resisting the US pressure to increase European
budget deficits.From 2010, the United Kingdom
began a fiscal consolidation program to reduce
debt and deficit levels while at the same
time stimulating economic recovery.
Other European countries also began fiscal
consolidation with similar aims.
=== Global responses ===
Most political responses to the economic and
financial crisis has been taken, as seen above,
by individual nations.
Some coordination took place at the European
level, but the need to cooperate at the global
level has led leaders to activate the G-20
major economies entity.
A first summit dedicated to the crisis took
place, at the Heads of state level in November
2008 (2008 G-20 Washington summit).
The G-20 countries met in a summit held on
November 2008 in Washington to address the
economic crisis.
Apart from proposals on international financial
regulation, they pledged to take measures
to support their economy and to coordinate
them, and refused any resort to protectionism.
Another G-20 summit was held in London on
April 2009.
Finance ministers and central banks leaders
of the G-20 met in Horsham, England, on March
to prepare the summit, and pledged to restore
global growth as soon as possible.
They decided to coordinate their actions and
to stimulate demand and employment.
They also pledged to fight against all forms
of protectionism and to maintain trade and
foreign investments.
These actions will cost $1.1tn.They also committed
to maintain the supply of credit by providing
more liquidity and recapitalising the banking
system, and to implement rapidly the stimulus
plans.
As for central bankers, they pledged to maintain
low-rates policies as long as necessary.
Finally, the leaders decided to help emerging
and developing countries, through a strengthening
of the IMF.
== Policy recommendations ==
=== IMF recommendation ===
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.
=== Raising interest rates ===
The Bank of Israel was the first to raise
interest rates after the global recession
began.
It increased rates in August 2009.On October
6, 2009, Australia became the first G20 country
to raise its main interest rate, with the
Reserve Bank of Australia moving rates up
from 3.00% to 3.25%.The Norges Bank of Norway
and the Reserve Bank of India raised interest
rates in March 2010.On November 2, 2017 the
Bank of England raised interest rates for
the first time since March 2009 from 0.25%
to 0.5% in an attempt to curb inflation.
== Comparisons with the Great Depression ==
On April 17, 2009, the then head of the IMF
Dominique Strauss-Kahn said that there was
a chance that certain countries may not implement
the proper policies to avoid feedback mechanisms
that could eventually turn the recession into
a depression.
"The free-fall in the global economy may be
starting to abate, with a recovery emerging
in 2010, but this depends crucially on the
right policies being adopted today."
The IMF pointed out that unlike the Great
Depression, this recession was synchronised
by global integration of markets.
Such synchronized recessions were explained
to last longer than typical economic downturns
and have slower recoveries.Olivier Blanchard,
IMF Chief Economist, stated that the percentage
of workers laid off for long stints has been
rising with each downturn for decades but
the figures have surged this time.
"Long-term unemployment is alarmingly high:
in the United States, half the unemployed
have been out of work for over six months,
something we have not seen since the Great
Depression."
The IMF also stated that a link between rising
inequality within Western economies and deflating
demand may exist.
The last time that the wealth gap reached
such skewed extremes was in 1928–1929.
== See also ==
2000s commodities boom
Collateralized debt obligation
Economic bubble
Financial crisis of 2007–08
Great Regression
Kondratiev wave
Peak oil
Savings and loan crisis
Stock market crash
Great Recession in the United States
Lost Decade
Great Recession in Europe
