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Recession of 2008

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[[Greece]], [[Portugal]] and [[Ireland]] remain in serious trouble, while [[China]] and [[Brazil]] have rebounded and are growing rapidly. Concerning the United States economy, some proponents of [[free market]] capitalism declare that [[Federal Reserve]] Chairman [[Ben Bernanke]] and the United States Congress should not have bailed out failing firms and instead should have allowed free market capitalism to recover as it did in the depression of 1920 without government intervention (free market capitalists assert that government intervention can drag out recessions and depressions).<ref>http://www.youtube.com/watch?v=zzTXaAXusiI</ref><ref>http://www.youtube.com/watch?v=czcUmnsprQI</ref> A 2005 study found that government corporate bailouts are often done for mere political considerations and the economic resources allocated exhibit significantly worse economic performance than resources allocated using purely business considerations.<ref>http://papers.ssrn.com/sol3/papers.cfm?abstract_id=676905</ref>
Likewise in the U.S. the economy has stabilized but showed little signs of recovery during President Obama's first term, apart from the stock market going up. Serious weaknesses continued in housing, commercial real estate, banking, automobiles, and retail trade. [[Unemployment]] remained above 8% til October of 2012 with conditions especially poor in California, Michigan and South Carolina.
[[Image:Bleak09.jpg|550px|left]]
The crisis is worldwide, with major impact in [[Britain]], Europe (that is the "European Union" or EU), [[Russia]], [[Japan]], the oil countries of the Middle East, and the developing world. The economy of the EU (Europe) shrank by 4% in 2009, with unemployment reaching 10%. Ireland, Iceland and parts of Eastern Europe are hardest hit. Britain was hit hard with its major banks in deep trouble. Recovery in Britain has been slow; its GDP fell 5.2% from 3Q 2008 to 3Q 2009.<ref>3Q is the third quarter, or the months of July, August and September.</ref>
*see also [[Economic stimulus package]]
Economists from all political viewpoints predicted the slide in GDP was likely to continue at an alarming pace well into summer 2009 as consumers curtailed spending and businesses reduced their capital investments and cut papayrolls. ==Income and Wealth==Wealth holding took a heavy blow. Incomes were down too, but not as dramatically. [[File:Pers-income.jpg|thumb|400px|Personal income; change from previous year]]===Money===In terms of a monetary explanation, there is far more money around, due to the stimulus programs of the Federal Reserve, Treasury, and Congress. However the velocity (turnover rate) is down to the lowest rate since 1991. That is, people and business are saving and not spending. Banks are not lending. The nation’s banks in March 2009 had reserves of $679 billion, up from only $45 billion in August 2008. Individuals are keeping their cash in the banks, or paying off credit cards and debts, and not buying new merchandise. The goal of federal stimulus spending is to get consumer spending going, to create jobs and keep businesses from slowing down.<ref>[[Inflation]] can do this -- force people to deplete cash and savings with a "spend now" mentality and damn the consequences of impoverishing themselves and heirs later. Keynes said, "In the long run we're all dead". Keynes is dead, but those alive in 2008 have to live with the consequences of decades of these economic theories elevated to public policy. </ref> If people do start spending again all the extra money will cause inflation, but in that case the Federal Reserve plans to reduce the money supply and, hopefully, restore normalcy and prosperity.<ref> Mark Gongloff, “Best Check on Inflation: Broken Banks,” ’’Wall Street Journal,’’ Mar. 20, 2009</ref>[[File:Housing$.jpg|thumb|340px]]==US==The longest economic slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982. The [[Great Depression]] lasted 43 months, from August 1929 to March 1933.  "This may be referred to as the Great Recession," because of its length, said Norbert Ore, chairman of the Institute for Supply Management’s factory survey. "It looked like we were headed for a shallow recession earlier in the year because of higher energy prices. With the meltdown in the financial sector, it has become something more serious."<ref>see [http://www.bloomberg.com/apps/news?pid=20601109&sid=ar0v6PP3HCpk&refer=home Steve Matthews and Timothy R. Homan, "U.S. May Be in for ‘Great Recession,’" ''Bloomberg News'' Dec 2, 2008]</ref>[[File:Constr1.jpg|thumb|400px|Construction spending--change from previous year]]===Housing===see [[Housing]] The construction of new housing and commercial buildings has fallen off; many commercial buildings and shopping centers have high vacancy rates and may be hard pressed to pay their debts. Housing prices continue low--falling from an average of $255,000 to $180,000, as millions of empty houses are a drag on the market. Indeed much of the housing activity in 2009 involved sales of foreclosed properties at distress prices.[[Image:U-2009-2.jpg|thumb|275px|right]]===Auto sector===The automobile industry was in desperate crisis, with General Motors and Chrysler, and numerous parts suppliers, on the verge of bankruptcy. Ford was in better shape as were the "transplants" like Toyota and Honda that have factories in the U.S. If GM were to shut down, many parts suppliers also would shut, forcing the end of most of GM's North American auto production. Autos would still be imported, though at higher than former prices. GM and Chrysler were given $17 billion TARP funds in December on condition they present a turnaround plan by Feb. 17, 2009. In its plan GM asked for access to an additional $16.6 billion in federal aid. GM also said it would close 14 U.S. plants, and cut 47,000 global hourly, salaried jobs, and revoke dealerships. Bankruptcy, GM claimed, could cost the federal government the loss of tax revenue and the loss of 1.3 million jobs across the US, as plants and dealers close down operation.<ref>. For the GM plan see [http://www.treas.gov/initiatives/eesa/agreements/auto-reports/GMRestructuringPlan.pdf GM Plan of Feb 17, 2009]</ref> [[Image:U-county-09feb.jpg|thumb|450px]]In March 2009 GM reported that its auditors raised substantial doubts about its ability to continue as a going concern, citing recurring losses from operations, stockholders' deficit and an inability to generate enough cash to meet its obligations. GM received $13.4 billion in federal loans, and the company asked for a total of $30 billion from the government. Since 2006 it ran up $82 billion in losses, including $30.9 billion in 2008. Bankruptcy took place June 1, 2009. With federal help, GM ultimately escaped [[bankruptcy]] law (see [[Crony capitalism]]).[[Image:U-states-08.jpg|thumb|380px]]===Unemployment===After the full implementation of the George W. Bush tax cuts, [[unemployment]] reached a low of 4.1% by October, 2006. After the [[Fannie Mae]] crash, the U.S. unemployment rate began trending upward, reaching 9.4% in May 2009. Analysts from the National Bureau of Economic research say that the current nation-wide recession began in December 2007. Unemployment reached 6.5% by election day 2008, and in some parts of the country already reached 10% and higher. ==Worldwide crisis==The crisis is worse in many other countries, which means they are dragging down the US economy and cannot be expected to be the engine to restore prosperity. Japan’s economy, the world’s second largest after the U.S., is deteriorating rapidly because of shrinking exports and weak domestic spending. Japan's GDP shrank at an annual rate of 12.7% in the fourth quarter of 2008, and the downward plunge shows no sign of reversal.  Japan's exports to the U.S. and other areas are down sharply, causing massive layoffs at companies like Nissan, Toyota, Panasonic and Sony. Capital spending on tools and factories has fallen as companies halted production lines and cut investment. Consumer spending has stalled as Japanese households reduced spending amid the large-scale layoffs. The government has promised a huge bailout package on the order of 50 trillion yen ($545 billion), but has been unable to get it passed in parliament.<ref>Hiroku Tabuschi, "Japan’s Economy Plunges at Fastest Pace Since ’74," [http://www.nytimes.com/2009/02/16/business/worldbusiness/16yen.html?ref=business ''New York Times'' Feb. 15, 2009] </ref> The economies in Europe and Russia are headed down, as are most third world countries. Eastern Europe is very hard hit, as is Ireland and Iceland. Economic growth in China continues at a much lower pace than usual, throwing tens of millions out of work there. The oil producing nations have seen their revenues plunge with the decline of oil prices. ==U.S. Politics==The Obama Administration based its domestic policies on the assumption that its stimulus package passed in February, 2009, would turn around the economy. The stimulus money has been spent slowly and little impact was visible by 212. The Treasury assumed that the tax revenue would be there to fund [[Direct spending|permanent new spending]] programs in areas such as health care and greening the economy. It assumed that the rich will recover enough to pay new, increased taxes. Tax collections only returned to the 2007 alltime, pre-recession level in 2012. The deficit for fiscal 2009 alone was an astonishing $1.4 trillion, or 10% of GDP. To maintain the appearance of business as usual, keep Social Security and disability payments flowing and maintain defence spending, the federal government added $5 trillion to the [[national debt]] with borrowed money from abroad. Obama delayed the recovery and kept unemployment high in order to permanently increase government spending and reduced the size and increase the burdens of the private sector.<ref>http://online.wsj.com/article/SB10001424052748703278604574624711732528426.html</ref> In the words of [[Rahm Emanuel]], "you don't want let a crisis go to waste."  ==Economists==The vast majority of the world's economists and economic forecasters&#8212;whether liberal or conservative&#8212;were caught unaware by the [[housing bubble]] and the banking crisis. Nearly all misjudged the depth of the economic downturn; they were baffled by the inability of orthodox monetary policy administered by the Federal Reserve to prevent such a steep downturn. They could not agree on what, if anything, the government should do to halt it and return to recovery. By 2010, most economists were in general agreement with the Obama administration's Keynesian strategy. However, some say the government is not doing enough and is too cozy with the bankers, while others say that it is doing too much and warn about dangerous long-term consequences. There is no professional consensus on the details of what should be done to end the downturn, speed recovery, or prevent a recurrence. ==See also==*[[Recovery Summer]] ====Notes====<references/> [[Category:Finance]][[Category:Business]][[Category:Economic history]][[Category:United States History]][[Category:Reagan Era]][[Category:Obama Administration]]
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