Late-2000's Recession

The late-2000s recession, more often called the Great Recession,is a severe ongoing global economic problem 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 late-2000s financial crisis.

There is a difference in the way that economists and laypeople use the term. By the scientific definition of the word "recession", the Great Recession ended in the U.S. in June or July 2009. The economist's definition's requisite of two consecutive quarters of growth in the GDP was confirmed by the end of 2009. However, economic hardship remains in the U.S. and many other countries. For the U.S. in particular, persistent unemployment, the continuing decline in home values, an escalating federal debt crisis, inflation, and rising gas prices have led many non-economists among the general public use the term to refer to the ongoing hardship (in the same way that the term "Great Depression" is also popularly used). In fact, a 2011 poll found that more than half of all Americans think the U.S. is still in recession or evendepression, despite official data that shows a modest recovery. It is difficult to avoid the ambiguity between the two senses of "recession" at least partially because English currently offers no alternative differentiable labels except longer circumlocutions (e.g., "contraction phase of a business cycle" for the scientific sense; "a widely shared feeling of economic underperformance" for the layperson's sense). A bit of neologismmight help reduce the confusion if short differentiable names were ever to catch on in popular usage.

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 Europesuffered 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. 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. Paul Krugman, who won the Nobel Memorial Prize in Economics, once commented on this as seemingly the beginning of "a second Great Depression." 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".

Pre – recession economic imbalances

The onset of the economic crisis took most people by surprise. A 2009 paper identifies twelve economists and commentators who, between 2000 and 2006, predicted a recession based on the collapse of the then-booming housing market in the U.S: Dean Baker, Wynne Godley, Fred Harrison, Michael Hudson, Eric Janszen, Steve Keen, Jakob Brøchner Madsen & Jens Kjaer Sørensen, Kurt Richebächer, Nouriel Roubini, Peter Schiff and Robert Shiller.

Among the various imbalances in which the U.S. monetary policy contributed by excessive money creation, leading to negative household savings and a huge U.S. trade deficit, dollar volatility and public deficits, a focus can be made on the following ones:

Commodity boom

The decade of the 2000s saw a global explosion in prices, focused especially in commodities and housing, marking an end to the commodities recession of 1980–2000. In 2008, the prices of many commodities, notably oil and food, rose so high as to cause genuine economic damage, threatening stagflation and a reversal of globalization.

In January 2008, oil prices surpassed $100 a barrel for the first time, the first of many price milestones to be passed in the course of the year. In July 2008, oil peaked at $147.30 a barrel and a gallon of gasoline was more than $4 across most of the U.S.A. The economic contraction in the fourth quarter of 2008 caused a dramatic drop in demand and prices fell below $35 a barrel at the end of the year. The high of 2008 may have been part of broader pattern of spiking instability in the price of oil over the preceding decade This pattern of spiking instability in oil price may be a product of Peak Oil. There is concern that if the economy was to improve, oil prices might return to pre-recession levels.

The food and fuel crises were both discussed at the 34th G8 summit in July 2008.

Sulfuric acid (an important chemical commodity used in processes such as steel processing, copper production and bioethanol production) increased in price 3.5-fold in less than 1 year while producers of sodium hydroxide have declared force majeure due to flooding, precipitating similarly steep price increases.