Beginning in 2007, the United States began
its worst recession in more than 80 years.
The economic downturn which came to be known
as the Great Recession was especially bad
compared to recessions of the past.
Recessions typically come along every five
years on average, but ever since the U.S.
economy emerged from the Great Recession in
June 2009, we haven't experienced another
one since. So, how exactly has our economy
avoided a recession for so long? There's not
exactly one single answer for that question,
so let's take a closer look at several moving
parts of the economy to understand what's
really going on. First, we need
to define exactly what a recession is.
A recession is sometimes defined as two
back-to-back quarters of negative gross domestic
product growth, but official recessions are
actually defined by the National Bureau of
Economic Research which defines them as a
significant decline in economic activity spread
across the economy lasting more than a few
months, normally visible in real GDP,
real income, employment, industrial
production and wholesale retail sales.
One of the reasons why the U.S. economy has
avoided a recession for so long is because
it's taken years for it to fully recover from
the last recession. For example, the unemployment
rate skyrocketed to 10% during the Great Recession
and it wasn't until 2016, about seven years
after the recession ended, that the unemployment
rate made its way back up to a natural level,
which The Federal Reserve says
is between 4.1% to 4.7%.
Another reason for America's long recovery
comes from the fact that the country's GDP
has grown at a stable pace at an average of
about 2% since 2010. An economics professor
at Harvard University, Dr. Robert Barro, recently
told Markets Insider that there has been no
recession because the growth rate of real
GDP has been remarkably stable, although at
a low average rate.
GDP grew at 2.3% in 2019, which is within
the range of 2% to 4% that most economists
believe is a healthy rate of growth.
While it may seem counterintuitive, slow and steady
GDP growth can be far better for an economy
than rapid GDP growth. Growth of 5%, for example,
would mean that the economy is running hot
and investors are putting too much money into
investments that probably won't pan out, creating
what's known as an asset bubble. When these
asset bubbles pop, as the real estate bubble
did leading into the Great Recession, they can
wreak havoc on the stock market and the economy.
So, slow and steady growth is good.
And it's basically what the U.S. economy has
had for much of the past ten years.
Of course, economic growth that's too slow
isn't a good thing either, which brings us
to another reason why we haven't had a recession
in more than 10 years. The government has
been doing everything in its power to prevent one.
For example, the Bush administration
introduced The Troubled Asset Relief Program
called TARP to help the financial markets.
And in 2008, the Obama administration introduced
the American Recovery and Reinvestment Act,
with both government programs investing billions
of dollars into the U.S. economy.
The federal reserve also bought trillions
of dollars’ worth of government bonds and
other assets during the Great Recession in
a program known as Quantitative Easing.
This long period of stimulus not only helped
the U.S. economy grow, but it has also contributed
to the country's long recovery. And the federal
government is still doing everything in its
power to avoid another recession.
President Trump introduced new tax cuts for
corporations and individuals aimed at spurring new
economic growth, and The Federal Reserve has, both,
raised and lowered interest rates over the
past few years to help stabilize the economy.
The Fed adjusts interest rates as an attempt
to control inflation. Just like with GDP,
some inflation is good, but too much or too
little inflation can be a bad thing. Tax cuts,
government stimulus and adjusting interest
rates aren't perfect tools for economic growth,
but they have all helped, to varying degrees,
to keep the U.S. economy from sliding back
into a recession over the past decade.
The bottom-line is that recessions are a normal
part of our economy and predicting when the
next one will come along is impossible.
What this means for investors is that timing the
market based on when you think a recession
is coming is a bad idea. Instead, investors
should buy stock in companies that can weather
economic storms and then hold on to those
stocks for years, even when the
economy takes a turn for the worse.
Thanks for watching this video. Do you think
the U.S. is on the brink of another recession?
Let us know in the comments.
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