Great Recession in the United States

The Great Recession was a very serious economic problem in the United States. It started in December 2007 and lasted until June 2009, but the country felt its effects for many years after that. This recession was caused by big problems in the banking system and a drop in home prices.

During this time, many people lost their jobs. The amount of goods and services the country made, called GDP, also went down. This was the worst economic drop since the Great Depression.

Unemployment, or the number of people without jobs, went up before slowly going back down. It took many years for jobs to return to where they were before the recession started. Even today, some areas have not fully recovered.

Background

After the Great Depression in the 1930s, the United States had strong economic growth for the rest of the 20th century. Laws like the Securities Exchange Act of 1934 and The Chandler Act of 1938 helped control financial markets.

In the early 1980s, there was a change in rules that allowed the financial world to grow quickly. Investment banks became very large and made much more money than other workers. Sadly, some people did dishonest things, especially with real estate, which hurt many people's savings. Big banks joined together to form even larger companies.

Early suggestions

Subprime mortgage lending jumped dramatically during the 2004–2006 period preceding the crisis (source: Financial Crisis Inquiry Commission Report, p. 70 Figure 5.2).

In early 2008, many experts thought the U.S. economy would have a hard time. Problems in the financial world, like the collapse of Bear Stearns, showed this would not be a small or short crisis.

Some leaders, like Alan Greenspan, thought it might be one of the toughest times since World War II. Others guessed the economy might improve a little before getting worse again. Even though some numbers showed the economy was still growing, many believed the U.S. was already in a difficult situation, especially with jobs and factory work. Different leaders had different ideas, but most agreed it was a serious problem.

Causes

Main articles: Causes of the Great Recession and Inverted yield curve

Cost of housing by State

Recession declared by economists

On December 1, 2008, experts said the United States entered a tough time for its economy in December 2007. They looked at jobs, work done, and how much things were worth. The big news about money lost a lot of value that same day.

U.S. Real GDP in Billions of Current USD. Courtesy of www.bea.gov

The hard times took away many jobs and it took years for things to get better. In January 2009, a famous expert wrote that it looked like a very bad time for money and work.

The number of jobs went down from January 2008 to February 2010. It didn’t get back to where it was until May 2014. The way people measured how many people could find work also went up and didn’t get better until 2016 or 2017.

U.S. median family net worth peaked in 2007, declined due to the Great Recession until 2013, and only partially recovered by 2016. Homeowners did not receive bailout support on the scale of financial institutions.

The big banks that help with money had trouble getting what they needed, and some had to join together, close down, or get help from the government. One big insurer also needed help and got support from the government.

There were many important events from 2007 to 2008, including banks getting help and big companies closing down.

Because of the problems, the leader of the money system in the United States asked for help to fix things. They wanted to use a lot of money to help banks. At first, Congress didn’t agree, but later they did.

By mid-November 2008, it was estimated that the efforts to fix the problems had reached over $5 trillion.

Federal reserve rates changes
Date	Primary discount rate	Secondary discount rate	Fed funds rate
Apr 30, 2008	2.25%	2.75%	2.00%
Mar 18, 2008	2.50%	3.00%	2.25%
Mar 16, 2008	3.25%	3.75%	2.25%
Jan 30, 2008	3.50%	4.00%	3.00%
Jan 22, 2008	4.00%	4.50%	3.50%

United States policy responses

Main article: United States policy responses to the Great Recession

In September 2008, important groups in the United States took steps to help during the financial crisis. They created a new program to protect certain investments. They also made it easier for financial groups to share money with each other for a short time. Additionally, they stopped a trading activity called short-selling for many financial companies to help calm the situation.

Recovery

U.S. changes in household debt as a percentage of GDP for 1989-2016. Recoveries from financial crises tend to be protracted, as debt levels must be reduced before typical borrow-and-spend patterns are resumed. In this case, homeowners paid down debt from 2009-2012.

The recession ended in 2009, but the economy still felt its effects for years. Many experts said it was the slowest recovery since the Great Depression and World War II. Household incomes went down, and unemployment stayed high for a long time.

The Great Recession was different because it had big problems in the banking system and many families had to pay off debts. This made the recovery slower. The housing market did not get better quickly because many homes were empty and people were paying off debts instead of buying new houses. Banks also did not lend money easily, which made it hard for people and businesses to spend or invest. Government spending grew at first but then slowed down, which also slowed the recovery.

Severity

Most economic historians think the Great Recession was the second worst time for the U.S. economy, after the Great Depression. Some experts, like Ben Bernanke, believe the 2008 financial crisis might have been very bad. They think leaders took steps to help the economy.