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Great Depression Great Recession National Bureau of Economic Research (NBER) Defines the unofficial beginning and ending dates of national recessions Definition: „a significant decline decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product (GDP), real income, employment, industrial production, and wholesale-retail sales" 47 recessions dated since 1790 Reasons: -Regulations -Policies: fiscal, trade, monetary -Cycles: agriculture, consuption, investment -Health of the banking industry External shocks to the economic system (wars , drastic weather chances, banking crisis) result in recessions Early recessions Panic of 1797, 3 years Deflation from Bank of England (land speculation bubble bursted) It disrupted commercial and real estate markets in US 1815-21 depression, 6 years Followed the 1812 war, high inflation rate Included Panic of 1819 Unemployment, real estate prices dropped, agriculture and manufacturing down 1839-1843 recession, 4 years Long period of deflation and massive default on debt Panic of 1873 and the Long Depression, 5 years+5 months Jay Cooke&Company(largest bank in US) failed, bursting the post-Civil War bubble. Coinage Act of 1873 caused the drop in silver price (mining suffered) Deflation and Wage cuts Great Railroad Strike in 1877 Long Depression 1873-1896 1882-85 recession, 3+ years Price depression Railroad construction declined Iron and steel industies affected Included Panic of 1884 Investments dropped (railway industry) Depression of 1920-21, 1,5 years Short but painful Highest deflation rate in US history Post -World War I recession Great Depression 1929-1933 Lasted 4 years + 7 months Stock markets crashed US banking collapsed Causes/theories Debt deflation – prices and income fell 20-50%, debts remained same dollar amount Differences in wealth and income – productivity increased at a higher rate than wages Financial institutions structures – structural weaknesses: unsufficent reserves, investments in stocks, risky loans Gold standard- spread the recession, no flexibility Expanding government – taxes, tariffs, regulations International trade – debts not paid back, tariffs hindering trade Population- decreasing population led to underconsumption Productivity – industrialisation Results Unemployment up to 25%/37%, 50%/80% Industrial production down by 45% Homebuilding dropped 80% 5000 banks out of business GDP fell 30% Stock market lost 90% of its value Average income reduced by 40% 9 million savings accounts wiped out At least 2 million homeless people 25% of all schoolchildren were malnourished Emigration vs immigration Mexican immigrants deported to Mexico GD vs GR The stock market did not fall as far Supply of money fell 25% during GD Unemployment rate was much higher (25%) Late 2000 recession, The Great Recession 2007-2009 (2010) Sub-prime mortgage crisis US housing bubble collapsed Global financial crisis followed Oil and food prices soared Financial institutions failed: Bear Sterns, Fannie Mae, Freddie Mac, Lehman Brothers, AIG Automobile industry in crisis Causes Public monetary policy in one (no supervision, regulations to protect pension/savings etc) hand and Private financial institutions practices on the other hand (risky lending, shadow banking) Results Political instability – protest movements Policy responses – bailouts Pension loss – 30/90% Legislation – stimulus plan Federal Reserve – loans Job losses – officially appr. 10% Ongoing hardship persistent high unemployment remains low consumer confidence continuing decline in home values increase in personal bankruptcies escalating federal debt crisis Inflation rising gas and food prices. US bailouts 700 billion USD – bank bailout 787 billion USD – fiscal stimulus package All together 14295 billion USD