The Great Resession is a period of general economic downturn observed in world markets during the late 2000s and early 2010s. The scale and time of recession vary from country to country. In terms of overall impact, the International Monetary Fund concluded that it was the worst global recession since the Great Depression of the 1930s. The cause of the recession comes largely from the United States, particularly the real estate market, although policies from other countries also contribute. According to the US National Economic Research Bureau (the official recession of the US recession), as experienced in that country, began in December 2007 and ended in June 2009, spanning more than 19 months. The Great Recession is linked to the 2007-08 financial crisis and the US subprime mortgage crisis of 2007-09. The Great Recession resulted in the scarcity of valuable assets in the market economy and the collapse of the financial sector (bank) in the world economy. The banks were later rescued by the US government.
Recession does not feel evenly around the world. While most developed countries in the world, especially in North America and Europe, fall into a definitive recession, many new developed countries are experiencing far less impact, especially China and India whose economies are growing substantially during this period.
Video Great Recession
Terminology
The two meanings of the word "[recession]" exist: an imprecise notion, referring widely to "periods of diminished economic activity"; and academic understanding is most often used in economics, which is operationally defined, refers specifically to the contractionary phase of the business cycle, with two or more consecutive quarters of GDP contraction. According to the academic definition, the recession ended in the United States in June or July 2009. However, in the broader sense of the word, many people use this term to refer to the ongoing difficulties (in the same way as the "Great Depression" popularly used).
Maps Great Recession
Overview
The Great Recession meets the IMF criteria for being a global recession in just one calendar year 2009. The IMF's definition requires a decline in real world GDP per capita . Despite the fact that quarterly data is used as the criteria for the definition of recession by all G20 members, representing 85% of world GDP, the International Monetary Fund (IMF) has decided - in the absence of a complete set of data - not to declare/measure global recession based on data Quarterly GDP. The seasonally adjusted seasonally adjusted GDP for the G20-zone, however, is a good indicator of world GDP, and it is measured to experience a quarter on quarterly quarterly decline from Q3-2008 to Q1-2009, which more precisely marks when a recession occurs at a global level.
According to the US National Economic Research Bureau (official referee of the US recession) the recession began in December 2007 and ended in June 2009, and is therefore extended for eighteen months.
The years leading up to the crisis are characterized by too high asset price rises and are associated with a surge in economic demand. Furthermore, the shadow banking system of the US (ie, non-depository financial institutions such as investment banks) has grown to rival the storage system but is not subject to the same regulatory oversight, making it vulnerable to bank runs.
US mortgage-backed securities, which have a difficult risk assessed, are marketed worldwide, as they offer higher yields than US government bonds. Many of these securities are backed by subprime mortgages, which collapsed in value when the US housing bubble burst during 2006 and homeowners began defaulting on their large mortgage payments starting in 2007.
The emergence of sub-prime lending losses in 2007 began to crash and expose other risky loans and exorbitant asset prices. With loan losses and the fall of Lehman Brothers on September 15, 2008, a huge panic ensued on the interbank lending market. There is an equivalent of a bank run on a shadow banking system, which has resulted in many large and established investment and commercial banks in the United States and Europe suffering huge losses and even facing bankruptcy, resulting in massive public financial aid (government bailout funds).
The global recession that followed led to a sharp decline in international trade, rising unemployment and declining commodity prices. Some economists predict that recovery may not emerge until 2011 and that the recession will be the worst since the Great Depression of the 1930s. Economist Paul Krugman once commented on this as apparently the beginning of the "Second Great Depression."
The government and central banks respond with fiscal and monetary policies to stimulate the national economy and reduce the risk of the financial system. The recession has renewed interest in Keynesian economic ideas on how to combat recession. Economists suggest that the stimulus should be withdrawn as soon as the economy recovers sufficiently to "map the path to sustainable growth".
The distribution of household incomes in the United States became more unbalanced during the post-2008 economic recovery. Inequality income in the United States has grown from 2005 to 2012 in more than 2 of the 3 metropolitan areas. The average household wealth decreased 35% in the US, from $ 106,591 to $ 68,839 between 2005 and 2011.
Cause
Panel report
The majority of reports provided by the US Commission for Financial Crisis Investigations, comprised of six Democrats and four appointed Republates, reported their findings in January 2011. It was concluded that "the crisis can be avoided and caused by:
- Widespread failure in financial regulation, including the failure of the Federal Reserve to stem a wave of toxic mortgages;
- The dramatic damage to corporate governance includes too many financial companies acting recklessly and taking too much risk;
- An explosive mix of excessive loans and risks by households and Wall Street that make the financial system collide with the crisis;
- The major policy makers are not ready for the crisis, do not fully understand the financial system they are watching; and systemic violations in accountability and ethics at all levels. "
There are two Republicans who disagree with the FCIC report. One of them, signed by three appointed Republicans, concluded that there were many causes. In disagreements separate from majority and minority opinion from FCIC, Commissioner Peter J. Wallison of the American Enterprise Institute (AEI) primarily blamed US housing policy, including Fannie & amp; Freddie, for the crisis. He writes: "When the bubble began to deflate in mid-2007, the low quality and high risks posed by government policies failed in unprecedented numbers.
In the "Declaration of the Summit on Financial Markets and the World Economy," dated 15 November 2008, leaders of Group 20 mentioned the following causes:
During periods of strong global growth, rising capital flows, and prolonged stability early in the decade, market participants sought higher yields without adequate appreciation of risk and failed due diligence. At the same time, underwriting standards are weak, unhealthy risk management practices, increasingly complex and opaque financial products, and consequently excessive leverage is combined to create vulnerabilities in the system. Policymakers, regulators and regulators, in some developed countries, do not adequately value and cope with rising risks in financial markets, following financial innovations, or considering the systemic consequences of domestic regulatory measures.
Narration
There are several "narrations" that try to put the causes of recession into context, with overlapping elements. Five such narratives include:
- There is an equivalent of a bank run on a shadow banking system, which includes investment banks and other non-depository financial entities. This system has grown to rival the depository system on a large scale but is not subject to the same security protection. Failure to disrupt the flow of credit to consumers and companies.
- The US economy is being driven by a housing bubble. When it exploded, private residential investment (ie, housing construction) fell by almost four percent. GDP and consumption made possible by the wealth of housing generated by bubbles also slows down. This creates a gap in annual demand (GDP) of nearly $ 1 trillion. The US government does not want to cover the shortage of the private sector.
- The amount of household debt records accumulated in the decades before the crisis resulted in a balance sheet recession (similar to debt deflation) as home prices began falling in 2006. Consumers began to pay off debts, which reduced their consumption, slowed the economy for a period of time long while the debt rate is reduced.
- US. government policy encourages homeownership even for those who can not afford it, contributes to lax standards of default, unsustainable housing price rises, and debt.
- Rich and high-end home adders with middle-to-right credit scores create speculative bubbles in house prices, and then destroy the local housing market and financial institutions after they fail in their debt en masse.
The underlying narrative of # 1-3 is the hypothesis that increased income inequality and wage stagnation encourage families to increase their household debt to maintain the standard of living they desire, encouraging bubbles. Furthermore, the lion's share of upward-flowing income increases the political power of business interests, which uses that power to deregulate or limit the regulation of the shadow banking system.
Narrative # 5 challenges the popular claim that subprime borrowers with bad credit cause a crisis by buying a house they can not afford. The narrative is supported by new research showing that the largest growth of mortgage debt during the US housing boom comes from those who have good credit scores in the middle and top of the credit score distribution - and that these borrowers are responsible for a disproportionate share division.
Trade imbalances and debt bubbles
The Economist wrote in July 2012 that the inflow of dollar investments needed to fund the US trade deficit is the main cause of housing bubbles and the financial crisis: "The trade deficit, less than 1% of GDP in the early 1990s, % in 2006. The deficit was financed by the entry of foreign deposits, especially from East Asia and the Middle East. Much of that money went into astute mortgages to buy houses that were too high, and the financial crisis was the result. "
In May 2008, NPR explained in their Peabody Award winning program "The Giant Pool of Money" that widespread savings from developing countries flowed into the mortgage market, prompting a US housing bubble. This collection of fixed-income savings increased from about $ 35 trillion in 2000 to about $ 70 trillion in 2008. NPR explained that this money came from various sources, "[b] the main title is that all kinds of poor countries get rich, make things like TV and sell us oil.China, India, Abu Dhabi, Saudi Arabia make a lot of money and spend it. "
Describing the crisis in Europe, Paul Krugman wrote in February 2012 that: "What we basically see, then, is the issue of balance payments, where capital flooded south after the creation of the euro, which led to overexploitation in southern Europe.
Monetary policy
Another narrative of origin has been focused on the respective sections played by public monetary policy (in the US in particular) and by the practice of private financial institutions. In the US, mortgage financing is not decentralized, non-transparent, and competitive, and it is believed that competition between lenders for revenue and market share contributes to declining assurance standards and risky loans.
While the role of Alan Greenspan as Chairman of the Federal Reserve has been much discussed (the main point of controversy remains to lower the rate of Federal funds to 1% for more than a year, which, according to Austrian theory, injects large sums of "easy" credit-based money into the financial system and creates an explosion unsustainable economies, "there is also the argument that Greenspan's action in 2002-2004 was actually motivated by the need to take the US economy out of the 2000s recession caused by the dot-com bubble burst - though thus it did not help prevent a crisis, but just postponed it.
High personal debt rate
Another narrative focuses on high levels of private debt in the US economy. US household debt as a percentage of annual disposable personal income was 127% at the end of 2007, compared to 77% in 1990. Faced with an increase in mortgage payments due to adjustable mortgage rate payments, households began to default in record numbers, rendering unsecured mortgages- securities are worthless. High private debt levels also impact growth by making deeper recessions and subsequent weaker recovery. Robert Reich claims the amount of debt in the US economy can be traced to economic inequality, assuming that middle-class wages remain stagnant while wealth is concentrated at the top, and households "withdraw equities from their homes and burden debts to maintain a standard of living."
The IMF reported in April 2012: "Household debt increased in the years leading up to the recession In developed countries, for five years before 2007, the ratio of household debt to income rose an average of 39 percentage points, to 138 percent.In Denmark, Iceland, Ireland, the Netherlands and Norway, debt culminates in more than 200 percent of household income. Household debt levels to historic highs also occur in developing countries such as Estonia, Hungary, Latvia and Lithuania, booming at both home and market prices shares mean that household debt is relative to widely held stable assets, which mask the increase in household exposure to a sharp decline in asset prices When home prices decline, ushering in the global financial crisis, many households see their wealth shrink relative to their debt, and , with less income and more unemployment, finding it harder to meet mortgage payments By the end of 2011, real house prices fell from a peak of about 4 1% in Ireland, 29% in Iceland, 23% in Spain and the United States, and 21% in Denmark. Default households, underwater mortgages (where the balance of the loan exceeds the value of the house), seizure, and fire sales are now becoming endemic in a number of countries. Deleveraging households by paying off debts or defaulting on them has started in some countries. It's very clear in the United States, where about two-thirds of debt reduction reflects failure. "
Pre-recession warning
The onset of the economic crisis left most people surprised. A 2009 paper identified twelve economists and commentators who, between 2000 and 2006, predicted a recession based on the fall of the booming housing market in the United States: Dean Baker, Wynne Godley, Fred Harrison, Michael Hudson, Eric Janszen, Med Jones Steve Keen, Jakob BrÃÆ'¸chner Madsen, Jens Kjaer SÃÆ'¸rensen, Kurt RichebÃÆ'¤cher, Nouriel Roubini, Peter Schiff, and Robert Shiller.
Housing bubble
In 2007, the real estate bubble still takes place in many parts of the world, especially in the United States, France, Britain, Spain, Netherlands, Australia, United Arab Emirates, New Zealand, Ireland, Poland, South Africa, Greece, Bulgaria, Croatia, Norway , Singapore, South Korea, Sweden, Finland, Argentina, Baltic countries, India, Romania, Ukraine, and China. US Federal Reserve Chairman Alan Greenspan said in mid-2005 that "at least, there is little 'foam' [in the US housing market]... it's hard not to see that there are many local bubbles."
The newspaper, writing at the same time, goes a step further, saying "the rise in house prices around the world is the biggest bubble in history". The real estate bubble (based on the definition of the word "bubble") is followed by a fall in the price (also known as the fall in house prices) which can result in many owners having negative equity (mortgage debt higher than the current property value).
Increase in uncertainty
Increased uncertainty may depress investment, or consumption. The 2007-2009 recession was the most striking episode of increasing uncertainty since 1960.
Ineffective or inappropriate rules
Rules encourage loose loan standards
Some analysts, such as Peter Wallison and Edward Pinto of the American Enterprise Institute, have asserted that private lenders are encouraged to loosen loan standards by the government's affordable housing policy. They cited the Housing and Community Development Act of 1992, which initially required 30 percent or more of Fannie and Freddie loan purchases related to affordable housing. The law gives the HUD the power to set future requirements, and ultimately (under the Bush Administration) a minimum of 56 percent is set. To meet the requirements, Fannie Mae and Freddie Mac set up a program to buy $ 5 trillion in affordable housing loans, and encourage lenders to loosen underwriting standards to generate the loans.
The critics also cite, as an incorrect rule, "The National Household Strategy: Partners in the American Dream (" Strategy "), compiled in 1995 by Henry Cisneros, Secretary of HUD President Clinton.In 2001, independent research firm, Graham Fisher & Company, states: "Although the fundamental initiative of [Strategy] is so broad in content, the main theme... is the loosening of credit standards."
The Community Reinvestment Act (CRA) is also identified as one of the causes of the recession, by some critics. They argue that lenders are loosening borrowing standards in an effort to fulfill CRA commitments, and they note that CRA's publicly announced credit commitments are enormous, totaling $ 4.5 trillion in the years between 1994 and 2007.
However, the Financial Crisis Investigation Commission (FCIC) concluded that Fannie & amp; Freddie "is not the main cause" of the crisis and that CRA is not a factor in the crisis. Furthermore, since housing bubbles appeared in several European countries as well, a disagreement report from members of the FCIC Republican Party also concluded that the US housing policy is not a strong explanation for a broader global housing bubble. The view that the US government housing policy is the main cause of the crisis has been much debated, with Paul Krugman calling it a "fantasy history".
Derivatives
Author Michael Lewis writes that a type of derivative called credit default swap (CDS) allows speculators to accumulate bets on the same mortgage securities. This is analogous to allowing many people to buy insurance in the same home. Speculators who buy CDS protection are betting that a significant mortgage security default will occur, while sellers (such as AIG) are betting they will not do so. An unlimited amount can be at stake on the same housing-related securities, provided that buyers and sellers of CDS can be found. When massive defaults occur on underlying mortgage securities, companies such as AIG that sell CDS can not do their side from liability and default; US taxpayers paid more than $ 100 billion to global financial institutions to honor AIG's obligations, causing great anger.
Derivatives such as CDS are unregulated or barely regulated. Some sources have noted the failure of the US government to oversee or even require transparency of financial instruments known as derivatives. A 2008 investigative article in the Washington Post found that prominent government officials at the time (Federal Reserve Board Chairman Alan Greenspan, Treasury Secretary Robert Rubin and SEC Chairman Arthur Levitt) strongly opposed any derivative rules. In 1998 Brooksley E. Born, head of the Commodity Futures Trading Commission, submitted a policy paper requesting feedback from regulators, lobbyists, legislators on the question of whether derivatives should be reported, sold through a central facility, or whether capital requirements should be prosecuted from their buyers. Greenspan, Rubin and Levitt pressured him to withdraw the paper and Greenspan persuaded Congress to pass a resolution that prevented the CFTC from organizing the derivatives for another six months - when Born's term would end. In the end, it was the collapse of a special kind of derivative, a mortgage backed security, which sparked the 2008 economic crisis.
Shadow banking system
Paul Krugman wrote in 2009 that running a banking shadow system is "the essence of what is happening" to cause a crisis. "When the shadow banking system evolves to rival or even surpass the conventional banking in a significant sense, politicians and government officials should realize that they re-create the kind of financial vulnerability that makes the Great Depression possible - and they should respond by extending the rules and financial safety nets to covering up these new institutions.An influential figures should announce a simple rule: anything that does what the bank does, anything that should be saved in a crisis like a bank should be arranged like a bank. "He referred to this lack of control as" malign neglect. "
During 2008, the three largest US investment banks went bankrupt (Lehman Brothers) or sold at fire selling prices to other banks (Bear Stearns and Merrill Lynch). Investment banks are not subject to more stringent regulations applied to depository banks. This failure exacerbates the instability in the global financial system. The remaining two investment banks, Morgan Stanley and Goldman Sachs, have the potential to face failure, opting to become commercial banks, thus subject to more stringent regulations but receiving access to credit through the Federal Reserve. Furthermore, American International Group (AIG) has insured mortgage-backed and other securities but is not required to maintain sufficient reserves to pay its obligations when the debtor fails on these securities. AIG was contractually required to post additional collateral with many creditors and disputing parties, touching the controversy when more than $ 100 billion in US taxpayers' money was paid to major global financial institutions on behalf of AIG. While this money is legally owed to the bank by AIG (based on an agreement made through credit default swaps purchased from AIG by agencies), several members of Congress and the media expressed anger that taxpayers' money was used to rescue the bank.
Economist Gary Gorton writes in May 2009: "Unlike the history of panicked banking from the late 19th and early 20th century, the panic of banking today is a wholesale panic, not a retail panic.In the previous episode, depositors ran to their banks and asked for cash in exchange for their checking accounts Unable to comply with the request, the banking system becomes bankrupt The current panic involves the financial company "walking" on other financial companies by not renewing the repo or repo agreement or increasing the repo margin ("haircut" ), forced big deleveraging, and resulted in the banking system becoming bankrupt. "
The Financial Crisis Investigation Commission reported in January 2011: "In the early part of the 20th century, we established a series of protections - the Federal Reserve as the last lender, federal deposit insurance, many regulations - to provide defense against the panic that regularly engulfed the American banking system in the 19th century. However, over the past 30 years, we have allowed the growth of shadowy banking systems and loaded with short-term debt - which rival the size of traditional banking systems Key market components - for example, multitrillion dollar repo loan market, off-balance entities- sheet, and the use of over-the-counter derivatives - are hidden from view, without the protection we have built to prevent financial destruction.We have a 21st century financial system with a 19th century security framework. "
Systemic crises
The financial crisis and recession have been described as a symptom of another deepening crisis by a number of economists. For example, Ravi Batra argues that the inequality of growth of financial capitalism produces a burst of speculative bubbles that produces great depression and political change. The feminist economist Ailsa McKay and Margunn BjÃÆ'¸rnholt argue that the financial crisis and its responses reveal the crisis of ideas in mainstream economics and in the economic profession, and called for the re-establishment of both economic, economic theory and economic profession. They argue that such a re-establishment should include new advances in feminist economics and ecological economics that take their starting point as socially responsible, sensible and responsible subjects in creating economics and economic theory that fully recognize caring for each other and the planet this.
Effects
Effects in the United States
A 2011 poll found that more than half of all Americans think the US is still in recession or even depression, despite official data showing a modest historical recovery. In 2013 the Census Bureau defined poverty rates to decrease to about 14.5% of the population. By the end of 2014, and early 2015, the majority of Americans still believe that this nation is still in recession. Such perceptions have been cited as a partial factor in Donald Trump's resurgence as a presidential candidate by 2016, and then the 45th President of the United States.
Effects in Europe
The crisis in Europe generally evolved from the crisis of the banking system to the sovereign debt crisis, as many countries are choosing to save their banking system using taxpayer money. Greece is different because it faces massive public debt rather than problems in its banking system. Some countries receive bailout packages from the troika (European Commission, European Central Bank, International Monetary Fund), which also implements 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 CIA World Factbook Greece increased its budget deficit from 10.4% of GDP in 2010 to 9.6 % in 2011. Iceland, Italy, Ireland, Portugal, France and Spain also increased their budget deficit from 2010 to 2011 relative to GDP.
However, with the exception of Germany, each of these countries has an increasing debt-to-GDP ratio (ie, worsening) from 2010 to 2011, as shown in the table on the right. The ratio of public debt to GDP of Greece increased from 143% in 2010 to 165% in 2011 to 185% in 2014. This indicates that despite increasing the budget deficit, GDP growth is not enough to support the reduction (improvement) in debt- to ratio GDP for these countries during this period. Eurostat reported that the debt-to-GDP ratio for the 17 euro-zone 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, unemployment rates in Spain, Greece, Italy, Ireland, Portugal and the UK increased. France has no significant change, while in Germany and Iceland the unemployment rate is declining. Eurostat reported that euro zone unemployment reached a record in September 2012 at 11.6%, up from 10.3% a year earlier. Unemployment varies significantly by country.
Economist Martin Wolf analyzed the relationship between cumulative GDP growth from 2008-2012 and a total reduction in budget deficits due to austerity policies (see chart on the right) in some European countries during April 2012. He concluded that: "Overall, there is no evidence here that big fiscal contraction [budget deficit reduction] brings benefits to confidence and growth that offset the immediate effects of contraction.They carry exactly what is expected: a small contraction brings recession and a great contraction brings depression. "Changes in the budget balance (deficit or surplus) about 53% change in GDP, according to the equation derived from the IMF data used in its analysis.
Economist Paul Krugman analyzed the relationship between GDP and the reduction of budget deficits for some European countries in April 2012 and concluded that the savings slow down growth, similar to Martin Wolf. He also wrote: "... It also implies that 1 euro austerity only yields about 0.4 euros deficit decreases, even in the short term.No wonder, then, that the entire austerity company is spinning toward a disaster."
Britain's decision to leave the European Union in 2016 was partly attributed to the effects after the country's major recession.
Countries that avoid recession
Poland and Slovakia are the only two EU members who have avoided the recession of GDP during the years affected by the Great Recession. In December 2009, the Polish economy has not yet entered a recession or even contracted, while an estimated 1.9 percent growth of the IMF's 2010 GDP growth is expected to increase. Analysts have identified several causes for positive economic development in Poland: very low bank lending rates and relatively small mortgage markets; the dismantling of relatively recent EU trade barriers and a surge in demand for Polish goods since 2004; Poland has been the recipient of EU direct financing since 2004; lack of excessive dependence on one sector of exports; the tradition of fiscal responsibility of the government; a relatively large internal market; Polish zloty is free-floating; low labor costs attract direct foreign direct investment; economic difficulties at the start of the decade, which prompted austerity measures before the world crisis.
While India, Uzbekistan, China and Iran are experiencing a slowdown in growth, they are not entering a recession.
South Korea narrowly avoided a technical recession in the first quarter of 2009. The International Energy Agency declared in mid-September that South Korea could be the only major OECD country to avoid a recession for the whole of 2009. This is the only growing economy to thrive in the semester first of 2009.
Australia avoided a technical recession after experiencing only a quarter of negative growth in the fourth quarter of 2008, with GDP returning to positive in the first quarter of 2009.
The financial crisis does not affect developing countries. Experts see several reasons: Africa is not affected because it is not fully integrated in the world market. Latin America and Asia look better prepared, because they have experienced a crisis before. In Latin America, for example, banking laws and regulations are very strict. Bruno Wenn of DEG Germany points out that Western countries can learn from these countries when it comes to regulation of financial markets.
Effects timeline
The table below shows all the national recessions that emerged in 2006-2013 (for 71 countries with available data), in accordance with the definition of the general recession, said that the recession occurs whenever seasonally adjusted to real GDP every quarter, through a minimum of two consecutive quarters -raw. Only 11 of the 71 countries registered with quarterly GDP data (Poland, Slovakia, Moldova, India, China, South Korea, Indonesia, Australia, Uruguay, Colombia and Bolivia) escaped recession during this period.
Some of the recessions that emerged in early 2006-07 are generally never attributed to being part of the Great Recession, illustrated by the fact that only two countries (Iceland and Jamaica) are 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 is 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 simultaneously are in recession. The number of countries in recession is 37 in Q2-2009, 13 in Q3-2009 and 11 in Q4-2009. One year after the maximum, in Q1-2010, only seven countries are in recession (Greece, Croatia, Romania, Iceland, Jamaica, Venezuela, and Belize).
Recession data for the entire G20-zone (representing 85% of all GWP), illustrates that the Great Recession exists as a global recession over Q3-2008 to Q1-2009.
Further follow-up recessions in 2010-2013 are limited in Belize, El Salvador, Paraguay, Jamaica, Japan, Taiwan, New Zealand and 24 from 50 European countries (including Greece). As of October 2014, only five of the 71 countries with available quarterly data (Cyprus, Italy, Croatia, Belize, and El Salvador) are still in an ongoing recession. The number of recession follow-ups that afflict European countries, usually referred to as a direct impact of the European sovereign debt crisis.
Country-specific details about the recession timeline
Iceland fell into an economic depression in 2008 after the collapse of its banking system (see iia financial crisis 2008-2011). In mid-2012 Iceland is considered one of Europe's success stories largely as a result of currency devaluations that have effectively reduced wages by 50% - making exports more competitive.
The following countries experienced a recession that started in the first quarter of 2008: Latvia, Ireland, New Zealand, and Sweden.
The following countries/regions are experiencing a recession that began in the second quarter of 2008: Japan, Hong Kong, Singapore, Italy, Turkey, Germany, Great Britain, Eurozone, European Union and OECD.
The following countries/regions are experiencing a recession that began in the third quarter of 2008: the United States, Spain, and Taiwan.
The following countries/regions are experiencing a recession that began in the fourth quarter of 2008: Switzerland.
South Korea "miraculously" avoided a recession with GDP returning positively on a 0.1% expansion in the first quarter of 2009.
Of the seven largest economies in the world by GDP, only China escaped recession in 2008. In the third quarter of 2008, China grew by 9%. To date, Chinese officials consider that 8% of GDP growth is needed only to create enough jobs for rural people who move to urban centers. This figure may be more appropriately considered 5-7% now because the major growth in the working population is receding.
Ukraine experienced a technical depression in January 2009 with a GDP growth of -20%, when comparing on a monthly basis with GDP rate in January 2008. Overall real GDP of Ukraine fell by 14.8% when comparing the whole part of 2009 with 2008. When measured quarter quarter with changes Real seasonally adjusted GDP, Ukraine is more precise in recession/depression across four quarters from Q2-2008 to Q1-2009 (with qoq changes of: -0.1%, -0.5%, -9.3 %, -10.3%), and two quarters from Q3-2012 to Q4-2012 (with qoq changes of -1.5% and -0.8% respectively).
Japan is recovering in the mid-2000s but slipping back into recession and deflation in 2008. The recession in Japan increased in the fourth quarter of 2008 with GDP growth of -12.7%, and deepened in the first quarter of 2009. with GDP growth -15.2%.
On February 26, 2009, the Economic Intelligence Briefing was added to a daily intelligence briefing prepared for the President of the United States. This addition reflects the assessment of US intelligence agencies that the global financial crisis presents a serious threat to international stability.
Business Week in March 2009 stated that global political instability is increasing rapidly due to the global financial crisis and creating new challenges that need to be managed. The Associated Press reported in March 2009 that: "US National Intelligence Director Dennis Blair said the economic weakness could lead to political instability in many developing countries." Even some developed countries see political instability. NPR reported that David Gordon, a former intelligence officer now leading the research at Eurasia Group, said: "Many, if not most, of the big countries out there have room to accommodate the economic downturn without massive political instability if we return in a normal long recession If you are in a much longer slump, then all bets are off. "
Political scientists argue that economic stasis triggered a social upheaval that was revealed through protests over various problems throughout the developing world. In Brazil, disgruntled youth united against a small bus tariff hike; in Turkey, they are nervous about converting parks to malls and in Israel, they are protesting against high rent in Tel Aviv. In all these cases, the immediate cause of the protest was reinforced by the underlying social suffering caused by the great recession.
In January 2009, Iceland government leaders were forced to hold elections two years earlier after the Icelandans held mass protests and clashed with police for the government's handling of the economy. Hundreds of thousands of people protested in France against President Sarkozy's economic policy. Prompted by the financial crisis in Latvia, the opposition and the unions there organized a demonstration against the cabinet of the prime minister Godmanis. Rally collects about 10-20 thousand people. At night, the rally turns into Riot. Crowds move to the parliament building and try to force it inside, but are rejected by the state police. In late February many Greeks took part in massive mass strikes because of the economic situation and they closed schools, airports, and many other services in Greece. Police and demonstrators clashed in Lithuania where people protesting economic conditions were shot with rubber bullets. Communists and others rallied in Moscow to protest the economic plans of the Russian government.
In addition to the various levels of unrest in Europe, Asian countries have also seen varying degrees of protest. Protests also occur in China as demand from the west for exports has decreased dramatically and unemployment has increased. Beyond this initial protest, the protest movement has grown and continues in 2011. By the end of 2011, Occupy Wall Street protests took place in the United States, spawning several branches which came to be known as the Occupy movement.
In 2012 economic difficulties in Spain increased support for secessionist movements. In Catalonia, support for the secessionist movement has been exceeded. On September 11, a pro-independence march attracted crowds of police estimated at 1.5 million.
Policy response
The financial crisis phase led to emergency intervention in many national financial systems. As the crisis develops into a true recession in many major economies, economic stimulus intended to revive economic growth is the most common policy tool. After implementing a rescue plan for the banking system, developed and developing countries announced plans to ease their economies. In particular, economic stimulus plans are announced in China, the United States and the European Union. In the last quarter of 2008, the financial crisis saw the major economic groups of the G-20 assume new significance as the focus of economic and financial crisis management.
United States policy response
The Federal Reserve, Treasury, and Securities and Exchange Commission took several steps on September 19, 2008 to intervene in the crisis. To stop the running potential in money market funds, the Treasury also announced on September 19, 2008 a new $ 50 billion program to ensure investment, similar to the Federal Deposit Insurance Corporation (FDIC) program. Part of the announcement includes a temporary exemption for sections 23A and 23B (Rule W), allowing financial groups to more easily share funds in their groups. The exception will expire on January 30, 2009, unless renewed by the Federal Reserve Board.
The Securities and Exchange Commission announced the closing of a brief sale of 799 financial shares, as well as action against short sales, as part of its reaction to the mortgage crisis. In May 2013 when stock markets hit record highs and housing and employment markets increased slightly, the prospect of the Federal Reserve beginning to ease economic stimulus activity began to enter investment analyst projections and affect 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, in which commercial banks could borrow overnight funds from the central bank, with two percentage points to 10.25 percent. The Reserve Bank of Australia injects nearly $ 1.5 billion into the banking system, almost three times the estimated market demand. The Reserve Bank of India added nearly $ 1.32 billion, through refinancing operations, the largest in at least a month.
On November 9, 2008, China's 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 step to stop the global financial crisis from hitting the world's second-largest economy. A statement on the government website says the State Council has approved plans to invest 4 trillion yuan ($ 586 billion) in infrastructure and social welfare by the end of 2010. The stimulus packages are invested in key areas such as housing, rural infrastructure, transport, health and education, environment, industry, rebuilding disasters, revenue building, tax cuts, and finance.
China's export-driven economy is beginning to feel the effects of the economic slowdown in the United States and Europe, and the government has cut interest rates three times in less than two months in an effort to spur economic expansion. On November 28, 2008, the Ministry of Finance of the People's Republic of China and the State Tax Administration jointly announced an increase in the rate of export tax rebates on some labor-intensive goods. This additional tax deduction will take place on December 1, 2008.
The stimulus package was welcomed by world leaders and analysts as greater than expected and a sign that by boosting its own economy, China helped stabilize the global economy. News of the announcement of the stimulus package sent the market to the world. However, Marc Faber claims that he thinks China is still in recession on January 16.
In Taiwan, the central bank on September 16, 2008, said it would cut its reserve ratio needed for the first time in eight years. The central bank added $ 3.59 billion into the interbank foreign currency market on the same day. The 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 on the same day.
In developing and developing countries, the response to the global crisis consists mainly of low-level monetary policy (especially Asia and the Middle East) coupled with currency depreciation against the dollar. There are also stimulus plans in some Asian countries, in the Middle East and in Argentina. In Asia, the general plan amounts to 1 to 3% of GDP, with the exception of China, which announces an accounting plan for 16% of GDP (6% of GDP per year).
European policy responses
As of September 2008, European policy measures were limited to a small number of countries (Spain and Italy). In both countries, such measures are dedicated to household reform (tax breaks) of the tax system to support specific sectors such as housing. The European Commission proposes a EUR200 billion stimulus plan to be implemented at the European level by countries. In early 2009, Britain and Spain completed their preliminary plans, while Germany announced a new plan.
On September 29, 2008, the Belgian, Luxembourg and Dutch authorities partially nationalized Fortis. The German government redeems Hypo Real Estate.
On October 8, 2008, the British Government announced a bank rescue package of approximately  £ 500 billion ($ 850 billion at the time). The plan consists of three parts. The first Ã,  £ 200 billion will be made in connection with the bank in a heap of liquidity. The second section will consist of state governments that increase the capital market within the bank. Along with this, Ã,  £ 50 billion will be available if the bank needs it, eventually the government will abolish eligible loans between British banks with a limit of up to Ã, £ 250 billion.
In early December 2008, German Finance Minister Peer SteinbrÃÆ'¼ck indicated a lack of confidence in the "Great Rescue Plan" and the reluctance to spend more money to cope with the crisis. In March 2009, the EU Presidency confirmed that the EU at that time strongly opposed US pressure to increase Europe's budget deficit.
Beginning in 2010, the United Kingdom embarked on a fiscal consolidation program to reduce debt and deficit levels while at the same time boosting economic recovery. Other European countries also started fiscal consolidation with a similar purpose.
Global response
Most of the political responses to the economic and financial crisis have been taken, as seen above, by individual countries. Some coordination takes place at the European level, but the need to cooperate on a global level has led leaders to activate the G-20's main economic entities. The first summit dedicated to the crisis took place, at the Head of state level in November 2008 (2008 G-20 Washington Summit).
G-20 nations met at a summit held in November 2008 in Washington to tackle the economic crisis. Regardless of the proposal on international financial regulation, they promised to take steps to support their economy and to coordinate it, and refused any avenues for protectionism.
Another G-20 meeting was held in London in April 2009. G-20 finance ministers and central bank leaders met in Horsham, England in March to prepare for the summit, and pledged to restore global growth as soon as possible. They decide to coordinate their actions and to stimulate demand and jobs. They also pledged to resist all forms of protectionism and maintain foreign trade and investment. This action will cost $ 1.1tn.
They are also committed to maintaining credit supply by providing more liquidity and recapitalizing the banking system, and to implement rapidly stimulus plans. As for the central bank governors, they pledged to keep the policy of low interest rates as long as necessary. Finally, leaders decided to help developing and developing countries, through the strengthening of the IMF.
Policy recommendations
IMF Recommendations
The IMF declared in September 2010 that the financial crisis will not end without a major downturn in unemployment as hundreds of millions of people are unemployed worldwide. The IMF urges governments to expand social safety nets and to create job creation even when they are under pressure to cut spending. The IMF also encourages governments to invest in skills training for the unemployed and even governments of countries, similar to Greece, with huge debt risk to focus first on long-term economic recovery by creating jobs.
Increase interest rate
The Bank of Israel was the first to raise interest rates after the global recession began. This level increases in August 2009.
On October 6, 2009, Australia became the first G20 country to raise its key interest rate, with Reserve Bank of Australia's interest rate rising from 3.00% to 3.25%.
The Norges Bank of Norway and 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 effort to curb inflation.
Comparison with the Great Depression
On April 17, 2009, IMF chief Dominique Strauss-Kahn said that it is possible that certain countries may not implement the right policy to avoid feedback mechanisms that could eventually turn the recession into a depression. "The free fall in the global economy may start to subside, with the recovery coming in 2010, but this is highly dependent on the right policies adopted today." The IMF shows that unlike the Great Depression, this recession is synchronized by the global integration of the market. Such a synchronized recession is described to last longer than a typical economic downturn and slower recovery.
Source of the article : Wikipedia
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