According to a 2009 USAA Magazine article, the “peak” of the current financial crisis occurred in September 2008, when Treasury Secretary Henry Paulson told congressional leaders a global financial collapse was imminent if Congress didn’t act immediately. But some economists point to late 2006 and early 2007, when subprime mortgage lenders started going under.
What is a Recession?
According to The World Book Encyclopedia, a recession is simply a “decline in overall business activity.” More specifically, a recession can be identified if a nation’s output of goods and services falls for six consecutive months. Nationwide recessions hurt buying, selling, production, and contribute to unemployment.
While many economists disagree on the precise causes of a recession, the widely accepted, generalized rule is that a nation is in recession if the total amount of spending in the economy drops to a below-normal level. Governments commonly try to halt a recession by boosting spending, reducing taxes, or increasing the supply of currency.
Both the Bush and Obama administrations decided to combat the adverse effects of a recession by flooding over $12 trillion into the financial system. Data published by the Congressional Budget Office indicates the stimulus being applied by the government today is almost four times as high as in the Great Depression.
History of the 2008 - 2009 U.S. Recession
The USAA Magazine report, using data from the Federal Reserve Bank of St. Louis, reconstructs a timeline in the evolution of the recession. Some of the major events are as follows:
September 7, 2008 – The U.S. government takes over Fannie Mae and Freddie Mac
September 15, 2008 – Lehman Brothers files for bankruptcy
September 16, 2008 – Fed authorizes $85 billion bailout of AIG
October 3, 2008 – $700 billion Troubled Asset Relief Program (TARP) passes
November 18, 2008 – Big Three auto execs request bailouts from Congress
December 16, 2009 – Fed cuts interest rates zero
January 16, 2009 – Treasury, Fed and FDIC announce second bailout
March 3, 2009 – Fed launches Term Asset-Backed Securities Loan Facility (TALF) to support credit markets
March 9, 2009 – U.S. stock market bottoms
May 7, 2009 – Nine of 19 biggest TARP banks pass stress tests
July 2009 – Chairman Ben Bernanke tells Congress that “investors are returning to private credit markets”
August 2009 – Fed says economic activity “leveling out”
Is the US Recession Over?
According to Federal Reserve System Chairman Ben Bernanke, it is, at least from a “technical perspective.” But Bernanke added a caveat when he told the Brookings Institution on Sept. 15, 2009 that “it’s still going to feel like a very weak economy.”
The U.S. Commerce Department reports the economy contracted by much less than what many analysts initially expected in the second quarter of 2009. But uncertainty remains. According to RealtyTrac®, foreclosure filings rose 15% for the first half of 2009, but newly constructed home sales climbed 11% in June. Though unemployment is still high and the U.S. auto industry struggles to rebuild itself, manufacturing is stabilizing, USAA reports. Banks are under pressure, but many have reported higher-than-expected earnings in 2009.
John Toohey, a financial analyst at USAA, also forecasts a slow, but sure, improvement. He said that though the United States is in for a gradual economic recovery, “we still have faith in the ability of the U.S. economy to return to a course of sustainable growth.”
Sources
Gilliam, John. “A New Horizon.” USAA Magazine. Fall 2009: 11-15.
Morrison, Rodney J. “Recession.” The World Book Encyclopedia. 1983 ed. Print.
Robb, Greg. “Bernanke declares ‘recession is very likely over.’” MarketWatch. 15 Sept. 2009.
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