Recession

What is a Recession?

In economics, the term recession is generally used to describe a situation in which a country's gross domestic product, sustains a negative growth factor for at least 2 consecutive quarters. National Bureau of Economic Research (NBER). NBER's definition of recession is a bit more vague than the standard one that was described above; they define recession as a "significant decline in economic activity lasting more than a few months". For this reason, the official designation of recession may not come until after we are in a recession for six months or even longer. Some economists also suggest that a recession occurs when the natural growth rate in GDP is less than the average of 2%. Typically, a normal economic recession lasts for approximately 1 year.

Causes of Economic Recession

· General consensus is that a recession is primarily caused by the actions taken to control the money supply in the economy.

· The Federal Reserve is responsible for maintaining an ideal balance between money supply, interest rates, and inflation.

· When the Fed loses balance in this equation, the economy can spiral out of control, forcing it to correct itself.

· This is precisely what we have seen in 2007, where the Feds monetary policy of injecting tremendous amounts of money supply into the money market has kept interest rates lower while inflation continues to rise.

· This, coupled with relaxed policies in lending practices making it easy to borrow money; the economic activity became unsustainable resulting in the economy coming to a near halt.

· It is also said that recession can be caused by factors that stunt short term growth in the economy, such as spiking oil prices or war.

· However, these are mostly short term in nature and tend to correct themselves in a quicker manner than the full blown recessions that have occurred in the past.

Effects of a Recession

· An economic recession can usually be spotted before it happens. There is a tendency to see the economic landscape changing in quarters preceding the actual onset. While the growth in GDP will still be present, it will show signs of sputtering and you will see

1. higher levels of unemployment,

2. decline in housing prices,

3. decline in the stock market,

4. business expansion plans being put on hold.

· When the economy sees extended periods of economic recession, the economy can be referred to as being in an economic depression.

History of Economic Recessions in The United States

This is a detailed history of economic recessions that have affected the United States economy.
A recession is defined as two or more quarters of sustained negative GDP growth.

Late 2000's Recession OCTOBER 2008 - CURRENT

In 2008, the possibility of an economic crisis was suggested by several important indicators of economic downturn worldwide. These included high oil prices, which led to both high food prices (due to a dependence of food production on oil production) and global inflation; a substantial credit crisis leading to the bankruptcy of several large and well established investment banks; increased unemployment; and a global recession developed. President: George W. Bush (R) [2001-2009]

Early 2000's Recession APRIL 2000 - OCTOBER 2001 (18 months)

The collapse of the dot-com bubble, the September 11th attacks, and accounting scandals contributed to a relatively mild contraction in the North American economy. President: William J. Clinton (D) [1993-2001] President: George W. Bush (R) [2001-2009]

Early 1990's Recession JULY 1990 - APRIL 1991 (10 months)

Industrial production and manufacturing-trade sales decreased in early 1991. President: George Bush (R)

Early 1980's Recession APRIL 1980 - OCTOBER 1982 (30 months)

The Iranian Revolution sharply increased the price of oil around the world in 1979, causing the 1979 energy crisis. This was caused by the new regime in power in Iran, which exported oil at inconsistent intervals and at a lower volume, forcing prices to go up. Tight monetary policy in the United States to control inflation lead to another recession. The changes were made largely because of inflation that was carried over from the previous decade due to the 1973 oil crisis and the 1979 energy crisis. President: Jimmy Carter (D) [1977-1981] President: Ronald Reagan (R) [1981-1989]

Oil Crisis of 1973 APRIL 1973 - APRIL 1975 (24 months)

A quadrupling of oil prices by OPEC coupled with high government spending due to the Vietnam War lead to stagflation in the United States. President: Richard Nixon (R)

Recession of 1957 JULY 1957 - APRIL 1958 (10 months)

Monetary policy was tightened during the two years preceding 1957, followed by an easing of policy at the end of 1957. The budget balance resulted in a change in budget surplus of 0.8% of GDP in 1957 to a budget deficit of 0.6% of GDP in 1958, and then to 2.6% of GDP in 1959. President: Dwight Eisenhower (R)

Recession of 1953 APRIL 1953 - APRIL 1954 (12 months)

After a post-Korean War inflationary period, more funds were transferred into National security. The Federal Reserve changed monetary policy to be more restrictive in 1952 due to fears of further inflation. President: Dwight Eisenhower (R)

Recession of 1947 APRIL 1947 - OCTOBER 1947 (12 months)

Stock markets crashed worldwide, and a banking collapse took place in the United States. This sparked a global downturn, including a second, more minor recession in the United States, the Recession of 1937. President: Harry S. Truman (D)

The Great Depression 1929 - 1939 (120 months)

The Great Depression was a worldwide economic downturn starting in most places in 1929 and ending at different times in the 1930s or early 1940s for different countries. It was the largest and most important economic depression in modern history, and is used in the 21st century as a benchmark in how far the world's economy can fall. The Great Depression originated in the United States; historians most often use as a starting date the stock market crash on October 29, 1929, known as "Black Tuesday". The end of the depression in the U.S. is associated with the onset of the war economy of World War II, beginning around 1939. President: Herbert Hoover (R) [1929-1933] Franklin D. Roosevelt (D) [1933-1945]

Post-WWI Recession 1918 – 1921

Severe hyperinflation in Europe took place over production in North America. It was a brief, but very sharp recession and was caused by the end of wartime production, along with an influx of labor from returning troops. This in turn caused high unemployment. President: Woodrow Wilson (D)

Panic of 1907 1907 – 1908

A run on Knickerbocker Trust Company deposits on October 22, 1907 set events in motion that would lead to a severe monetary contraction. President: Theodore Roosevelt (R)

Panic of 1893 1893 – 1896

Failure of the United States Reading Railroad and withdrawal of European investment lead to a stock market and banking collapse. This Panic was also precipitated in part by a run on the gold supply. President: Grover Cleveland (D)

Panic of 1873 1873 – 1879

Economic problems in Europe prompted the failure of the Jay Cooke & Company, the largest bank in the United States, which bursted the post-Civil War speculative bubble. The Coinage Act of 1873 also contributed by immediately depressing the price of silver, which hurt North American mining interests. President: Ulysses S. Grant (R)

Panic of 1857 1857 – 1860

Failure of the Ohio Life Insurance and Trust Company burst a European speculative bubble in United States railroads and caused a loss of confidence in American banks. Over 5,000 businesses failed within the first year of the Panic, and unemployment was accompanied by protest meetings in urban areas. President: James Buchanan (D)

Panic of 1837 1837 – 1843

A sharp downturn in the American economy was caused by bank failures and lack of confidence in the paper currency. Speculation markets were greatly affected when American banks stopped payment in specie (gold and silver coinage). President: Martin Van Buren (D)

Panic of 1819 1819 – 1824

The first major financial crisis in the United States featured widespread foreclosures, bank failures, unemployment, and a slump in agriculture and manufacturing. It also marked the end of the economic expansion that followed the War of 1812. President: James Monroe (I)

Depression of 1807 1807 – 1814

The Embargo Act of 1807 was passed by the United States Congress under President Thomas Jefferson. It devastated shipping-related industries. The Federalists fought the embargo and allowed smuggling to take place in New England. President: Thomas Jefferson - James Madison

Panic of 1797 1793 – 1800

The effects of the deflation of the Bank of England crossed the Atlantic Ocean to North America and disrupted commercial and real estate markets in the United States and the Caribbean. Britain's economy was greatly affected by developing disflationary repercussions because it was fighting France in the French Revolutionary Wars at the time. President: George Washington