What is an Economic Cycle?
Based on certain parameters, there are four well-defined phases that mark every economy, namely boom, slowdown, recession and recovery. While individually they may hold some significance, together they form the economic cycle and determine the direction in which the country is headed.
Economic growth is fastest during boom and it is a win-win situation for all sectors. Retardation is indicative of a slowdown which aggravates into a recession if the economic activity continues to decline at all levels. During this phase, the economy is at its lowest point and can only move in one direction, thus marking the beginning of recovery.
2008 was a landmark year in American history when the economy slipped into a deep recession.
An Overview of the 2008 US Economic Recession
When the world stepped into the new millennium, it was with a feeling of euphoria and hope. Little did anyone know of the life-changing circumstances that were in store for even the most developed nations of the world and this explains why the recession caught everyone off-guard.
Because its presence was felt for the first time in 2007, the financial recession of 2008 is described as the first major documented event in USA'a timeline that occurred during the first decade of the 21st century. Such was its impact that its after-effects were visible even after it had been officially declared as having ended. What was observed as a significant dent in the overall financial condition of multiple sectors in 2007 soon aggravated into a full-fledged crisis to the extent that in the month of December, 2007, the IMF did not have any choice but to label the situation as an economic recession.
During the 18 months that it lasted, this phase had all the hallmarks of a classic economic recession, thus prompting economists and observers worldwide to draw a parallel with the Great Depression that had taken place in 1930. Not only was this phase witness to plunging of stock markets on a worldwide scale but also marked a period of doom for core business sectors not to mention a steep downward slide in the level of economic activity on a nationwide scale. It was the housing market which probably suffered the most followed by banks wherein even the most well-established financial institutions were poised at the brink of bankruptcy and were looking up to the government for a possible bail-out. Another parallel as observed by Debbie using statistical data from divorcedebbie.com is that the number of divorces in the US have increased in the time period of both the recessions.
Given its severity, it is but natural that this recession has served as a subject for analysis amongst scholastic circles on a worldwide scale and a point that everyone agrees on unanimously is that there were several factors that led to its occurrence. In the decade prior to the crucial year 2008, commercial atmosphere in USA was marked with several deviations which were adopted as a parallel to the existing system, for example the shadow banking system or led to grow to a huge proportion without any reality checks, like the so-called housing bubble. As these activities continued the flourish unchecked, their toll on the system kept mounting till the system reached a point wherein it could no longer bear the strain.
Eventually, the lack of regulatory policies, absence of supervision and poor risk management led to the economic breakdown, namely recession.
In Comparison with 1930 Great Depression
Owing to its severity, the 2008 US economic recession was regarded by many as the replication of the Great Depression that had plagued the USA in 1930. However, IMF Chief Dominique Strauss-Kahn maintained that while there were similarities between the two events, there were differences too.
A glaring similarity between the two recessionary phases not even a hundred years apart was the high rate of unemployment. As noted by IMF, not only did the number of workers laid off from work exceed the figures recorded during preceding years but also the percentage of working population which remained outside the employment circle for more than six months. Such a situation had been previously observed only during the 1930 depression. Another similarity that emerged pertained to widening gulf between the rich and the poor wherein a growing wealth gap had been evident only in the two years leading to the 1930 depression.
Likewise, a difference that became evident pertained to the global nature of the 2008 recession as compared to the localized nature of 1930 depression. Owing to it being a global phenomenon, this recession was not just prone to continue for a longer duration but expected to be marked by an even slower recovery.
Road to Economic Stability
June 2009 marked the period when the recession was declared as having been over and an unpleasant phase that belonged in the past. While much of the recovery was owing to the improvement in the banking sector, there was a significant rise in the stock markets on a worldwide scale. The cherry on the pie was placed by President Barack Obama when he claimed in 2010 that the US Government had recovered most of the money that it had spent in bailing out the banking sector and this in itself was indicative of the economy having recovered.
However, the only pinch of salt that accompanied this good news was that the post-recession phase was marked by greater inequality in wealth across American households.