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.[11] 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
1937 to 1943 depression compared to 2008 to 2011 recession, using percentage gained/lost since 1937 and 2008, respectively
DJIA figures for percentage lost in 1937-1943 vs 2008-2011 (based on initial 1937 and 2008 DJIA month end amount, respectively)

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.
 

Stock market

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.

Unemployment

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.
Inflation is high, driven by a surge in commodity prices, but is expected to moderate. The situation is exceptionally uncertain and subject to considerable downside risks. The immediate policy challenge is to stabilize financial conditions, while nursing economies
through a period of slow activity and keeping inflation under control.

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
and entered a tumultuous new phase in September. The impact has been felt across the global Financial system, including in emerging markets to an increasing extent. Intensifying solvency concerns have led to emergency resolutions of major U.S. and European financial institutions and have badly shaken confidence. In response, the U.S. and European authorities have taken extraordinary measures aimed at stabilizing markets, including massive liquidity provision, prompt intervention to resolve weak institutions, extension of deposit insurance, and recent U.S. legislation to use public funds to purchase troubled assets from banks. However, the situation
remains highly uncertain as this report goes to press. At the same time, the combination of the surge in food and fuel prices under way since 2004 and tightening capacity constraints has propelled inflation to rates not seen in a decade.

Source IMF

Economic Crisis Research Papers, News, Interviews, Articles and Videos

• Med Jones - Financial Crisis - Economic Research - Copenhagen Business School Denmark
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• Med Jones Assessing Obama's Economic Policiess - A Special Economic Report - June 2009
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