The Term Great Recession Suggests That The Continual Decline

The Term Great Recession Suggests That The Continual Decline Within

The term "Great Recession" reflects the significant and prolonged economic decline experienced globally, with a particular focus on the United States. This recession, which began around 2007-2008, was primarily caused by a combination of factors rooted in the US economy, including the collapse of the housing market, excessive risk-taking by financial institutions, and widespread defaults on subprime mortgages. The recession led to substantial economic downturns, high unemployment rates, reduced consumer confidence, and identification of systemic vulnerabilities within the financial sector.

The Great Recession has had profound impacts on individuals and communities. Many people lost their jobs, faced financial insecurity, and encountered difficulties in meeting their basic needs. The crisis also exacerbated mental health issues, increased stress levels, and reduced overall well-being, especially among vulnerable populations such as young workers and those with pre-existing health conditions. Studies show that the recession deteriorated workers' cognitive functioning and job satisfaction, which in turn affected productivity and economic recovery. The economic downturn also led to a noticeable decline in working hours and income, transforming many lives and altering the socio-economic landscape.

Moreover, the recession's economic impacts extended to declines in the gross domestic product (GDP), reductions in consumer spending, and a slowdown in industrial productivity. As the economy contracted, demand for goods and services plummeted, further deepening the downturn. Different sectors experienced varying levels of harm; manufacturing was heavily affected as global supply chains were disrupted, and exports diminished as countries faced their own economic struggles. The decrease in economic activity was compounded by changes in government policies, which aimed to stabilize the financial system through fiscal stimulus and monetary easing. These policy responses were critical in preventing an even deeper economic collapse.

Causes and Consequences of the 2008 Great Recession

The root causes of the Great Recession are multifaceted. The collapse of the housing bubble was a primary trigger, driven by a surge in mortgage lending, particularly subprime loans. Financial institutions issued high-risk mortgage loans, often with little regard for borrowers' ability to repay, leading to an unsustainable increase in housing prices. When housing prices declined sharply, mortgage defaults surged, resulting in immense losses for banks and investors holding mortgage-backed securities. This financial crisis rapidly spread across global markets due to the interconnectedness of financial institutions and markets.

Research by Katkov (2012) highlights that the decline in the real GDP by approximately 3.7% during the recession was closely linked to the bursting of the housing bubble and the subsequent financial fallout. The upheaval was exacerbated by changing macroeconomic policies, which shifted from demand-supportive strategies to austerity measures, further constraining economic growth. The decline in manufacturing employment, driven by reduced demand for exports and offshore production, also contributed to the economic decline. The acceptance of a new role for the US in the global division of labor—favoring service and financial sectors over manufacturing—also played a part in systemic vulnerability.

Shomali and Giblin (2010) argue that asset inflation, especially in real estate, was a critical precursor to the crisis. Increasing mortgage debt, with over 27 million homeowners holding real estate loans, intensified the risk exposure of financial institutions. Consumer debt, increased through easy credit availability, led to heightened household vulnerabilities. The widespread issuance of risky loans, including fraudulent mortgages, further destabilized the banking system. When housing prices plummeted—by as much as 200%—homeowners defaulted on loans, causing banks to incur massive losses and leading to a liquidity crisis where financial institutions lacked sufficient cash to meet liabilities.

In response, the U.S. government implemented extensive fiscal and monetary policies to stabilize the financial system. The Federal Reserve reduced interest rates and introduced unconventional monetary measures, such as quantitative easing. Simultaneously, fiscal stimulus packages aimed to support employment, consumer confidence, and industrial output. However, the recession's aftermath left lasting scars, with persistent unemployment, reduced income levels, and weakened social safety nets. The crisis also prompted reforms in financial regulation, targeting risky lending practices and holding financial institutions more accountable.

From an international perspective, the Great Recession highlighted the vulnerabilities of global financial markets, prompting coordinated policy responses among leading economies. The crisis underscored the importance of robust regulation, transparent financial practices, and the need for vigilant monitoring of systemic risks. It also triggered debates about income inequality, economic resilience, and societal preparedness for future shocks. In sum, the Great Recession was a complex event triggered primarily by housing market excesses, with widespread repercussions that reshaped economic policies and financial regulation worldwide.

References

• Katkov, A. (2012). Great Recession of : Causes and Consequences. Journal of Applied Business and Economics, 13(3), 45-59.
• Shomali, H., & Giblin, G. (2010). The Great Depression and the Recession: The First Two Years Compared. International Research Journal of Finance and Economics, 59, 15-22.
• Margerison-Zilko, C., Goldman-Mellor, S., Falconi, A., & Downing, J. (2016). Health impacts of the great recession: a critical review. Current Epidemiology Reports, 3(1), 81-91.
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• Bernanke, B. S. (2010). Essays on the Great Depression. Princeton University Press.
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