The Great Recession was a worst period during 2007 and 2009 where the national economies across the globe marked a general decline. The recession period varied from country to country. The reasons for the Great Recession included the different vulnerabilities that developed in the financial system and the downfall of the housing bubble of United States in 2005 – 2012, where the house owners couldn’t afford the housing prices and had to abandon the mortgages. By the Great Recession of the housing market, it fuelled low interest rates, toxic mortgages, insufficient regulation and easy credits.
Different countries suffered the Great Recession period at different times with various impacts. There was sharp economic decline in North America, South America and Europe where as it was less impact in countries like China, India and Indonesia. The least impact was in Oceania due to its proximity to Asian markets.
What is Great Recession?
Great Recession also means Great Depression. During 1930s, there was a gross domestic product decline and unemployment rate which at a point reached to about 25%. But however, the worst downturn happened during the period of 2000. According to the calculations made by the U.S National Bureau of Economic Research, the Great Recession started during the period of December 2007 and continued till June 2009 which was considered as the longest period of recession for over eighteen months.
Reasons for the Great Recession
It was an avoidable reason that caused the Great Recession according to a study in 2011 by the Financial Crisis Inquiry Commission, where there were six democrats and four republicans who cited different contributing factors that led to the Great Recession.
Their first finding was pointing towards the failure of the government to regulate the financial industry properly and even the Fed’s inability to rectify the toxic mortgage lending.
There were even many firms who were taking many risks financially. Some investment firms which acted as shadow banking system did some rivalry of the depository banking system which didn’t come under the scrutiny or regulations. But when this system failed, it affected very badly on the flow of credit to consumers and businesses.
Another reason that caused the Great Recession was identified; excess money was borrowed by the consumers, corporations and lawmakers without fully knowing the collapsing financial system.
Response of Federal to the Great Recession
Federal Reserve and some government officials together took an immediate decision before the US economy went to a total collapse. To boost up the borrowing and capital investments, the interest rates for first time were reduced to zero and introduced quantitative programs to add more money into the economy.
The main aim of the federal government was to create few key programs to provide emergency assistance.
• Troubled Asset Relief Program (TARP):
This program helped to stabilize the economy where the government purchased the toxic assets by spending a huge amount where this money was used to bail out the banks which were in trouble.
• The American Recovery and Reinvestment Act (ARRA):
In 2009, ARRA was introduced under which a series of tax cuts happened, unemployment problems were sorted, loan guarantees and government spending mandates and all helped to kick start the economy.
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