Economic Crisis Research - References and Resources
The Economic Crisis of 2008-2009 was caused by sharp recession, often called the Great Recession, is a severe ongoing global economic recession that began in the United States in December 2007. The Great Recession has affected the entire world economy, with higher detriment in some countries than others. It is a global recession characterized by various systemic imbalances and was sparked by the outbreak of the 2007 to present Financial crisis.
By June–July 2009 a growing number of U.S. economists and the National Bureau of Economic Research (NBER) started to believe that the recession may have ended in the U.S. The requisite of two consecutive quarters of growth in the GDP was confirmed by the end of 2009. However, heightened unemployment and economic hardship remain in many countries.
According the National Bureau of Economic Research (the official arbiter of recessions) the recession began in December 2007.The financial crisis is linked to reckless lending practices by financial institutions and the growing trend of securitization of real estate mortgages in the United States. The US mortgage-backed securities, which had risks that were hard to assess, were marketed around the world. A more broad based credit boom fed a global speculative bubble in real estate and equities, which served to reinforce the risky lending practices.The precarious financial situation was made more difficult by a sharp increase in oil and food prices. 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. As share and housing prices declined, many large and well established investment and commercial banks in the United States and Europe suffered huge losses and even faced bankruptcy, resulting in massive public financial assistance.
A global recession has resulted in a sharp drop in international trade, rising unemployment and slumping commodity prices. In December 2008, the National Bureau of Economic Research (NBER) declared that the United States had been in recession since December 2007. Several economists have predicted that recovery may not appear until 2011 and that the recession will be the worst since the Great Depression of the 1930s.The conditions leading up to the crisis, characterized by an exorbitant rise in asset prices and associated boom in economic demand, are considered a result of the extended period of easily available credit, inadequate regulation and oversight, or increasing inequality.
The recession has renewed interest in Keynesian economic ideas on how to combat recessionary conditions. Fiscal and monetary policies have been significantly eased to stem the recession and financial risks. Economists advise that the stimulus should be withdrawn as soon as the economies recover enough to "chart a path to sustainable growth"
In the United States
Although some casual comparisons between the late-2000s recession and the Great Depression have been made, there remain large differences between the two events.The consensus among economists in March 2009 was that a depression was not likely to occur.UCLA Anderson Forecast director Edward Leamer said on March 25, 2009 that there had not been any major predictions at that time which resembled a second Great Depression:
"We've frightened consumers to the point where they imagine there is a good prospect of a Great Depression. That certainly is not in the prospect. No reputable forecaster is producing anything like a Great Depression."
Differences explicitly pointed out between the recession and the Great
Depression include the facts that over the 79 years between 1929 and 2008, great
changes occurred in economic philosophy and policy, the stock market had not
fallen as far as it did in 1932 or 1982, the 10-year price-to-earnings ratio of
stocks was not as low as in the '30s or '80s, inflation-adjusted U.S. housing
prices in March 2009 were higher than any time since 1890 (including the housing
booms of the 1970s and '80s),the recession of the early '30s lasted over
three-and-a-half years,and during the 1930s the supply of money (currency plus
demand deposits) fell by 25% (where as in 2008 and 2009 the Fed "has taken an
ultraloose credit stance").Furthermore, the unemployment rate in 2008 and early
2009 and the rate at which it rose was comparable to most of the recessions
occurring after World War II, and was dwarfed by the 25% unemployment rate peak
of the Great Depression.
Price-to-earnings ratios have yet to drop as low as in previous recessions. On this issue, "it is critically important, though, to recognize that different analysts have different earnings expectations, and the consensus view is more often wrong than right." Some argue that price-to-earnings ratios remain high because of unprecedented falls in earnings.
Market strategist Phil Dow "said he believes distinctions exist between the current market malaise" and the Great Depression. The Dow's fall of over 50% in 17 months is similar to a 54.7% fall in the Great Depression, followed by a total drop of 89% over the next 16 months. "It's very troubling if you have a mirror image," said Dow. Floyd Norris, chief financial correspondent of The New York Times, wrote in a blog entry in March 2009 that the decline has not been a mirror image of the Great Depression, explaining that although the decline amounts were nearly the same at the time, the rates of decline had started much faster in 2007, and that the past year had only ranked eighth among the worst recorded years of percentage drops in the Dow. The past two years ranked third however.
The chief economist of the I.M.F., Dr. Olivier Blanchard, 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 US, 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.
Three years into the Great Depression, unemployment reached a peak of 25% in the U.S. The United States entered into recession in December 2007 and in March 2009, U-3 unemployment reached 8.5%. In March 2009, statisticianJohn Williams "argued that measurement changes implemented over the years make it impossible to compare the current unemployment rate with that seen during the Great Depression". Risks imposed by deregulation
On April 17, 2009, 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 synchronized by global integration of markets. Such synchronized recessions were explained to last longer than typical economic downturns and have slower recoveries.
- Source Wikipedia
World Economic Outlook
World Economic Outlook (WEO) Financial Stress, Downturns, and Recoveries October 2008
The world economy is entering a major downturn in the face of the most
dangerous financial shock in mature financial markets since the 1930s. Global
growth is projected to slow substantially in 2008, and a modest recovery would
only begin later in 2009.
Global Economy under Stress After years of strong growth, the world economy is decelerating quickly (Chapters 1 and 2). Global activity is being buffeted by an extraordinary financial shock and by still-high energy and other commodity prices. Many advanced economies are close to or moving into recession, while growth in emerging economies is also weakening.
The financial crisis that first erupted with the U.S. subprime mortgage
collapse in August 2007 has deepened further in the past six months
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