Great Recession

The Great Recession was a period of general economic decline observed in world markets beginning around the end of the first decade of the 21st century. The exact scale and timing of the recession, and whether it has ended, is debated and varied from country to country. In terms of overall impact, the International Monetary Fund concluded that it was the worst global recession since World War II. According to the US National Bureau of Economic Research (the official arbiter of US recessions) the US recession began in December 2007 and ended in June 2009, and thus extended over 19 months. The Great Recession was related to the financial crisis of 2007–08 and U.S. subprime mortgage crisis of 2007–09.

Terminology

There are two senses of the word "recession": a less precise sense, referring broadly to "a period of reduced economic activity"; and the academic sense used most often in economics, which is defined operationally, referring specifically to the contraction phase of a business cycle, with two or more consecutive quarters of GDP contraction. Under the academic definition, the recession ended in the United States in June or July 2009. However, in the broader, lay sense of the word, many people use the term to refer to the ongoing hardship (in the same way that the term "Great Depression" is also popularly used).

Financial crisis

The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth but do not necessarily result in changes in the real economy.

Many economists have offered theories about how financial crises develop and how they could be prevented. There is no consensus, however, and financial crises continue to occur from time to time.

Types

Banking crisis

When a bank suffers a sudden rush of withdrawals by depositors, this is called a bank run. Since banks lend out most of the cash they receive in deposits (see fractional-reserve banking), it is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run renders the bank insolvent, causing customers to lose their deposits, to the extent that they are not covered by deposit insurance. An event in which bank runs are widespread is called a systemic banking crisis or banking panic.

Financial crisis of 2007–08

The financial crisis of 2007–08, also known as the global financial crisis and 2008 financial crisis, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It threatened the collapse of large financial institutions, which was prevented by the bailout of banks by national governments, but stock markets still dropped worldwide. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis. The active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 9, 2007, when BNP Paribas terminated withdrawals from three hedge funds citing "a complete evaporation of liquidity".

Panic of 1873

The Panic of 1873 was a financial crisis that triggered a depression in Europe and North America that lasted from 1873 until 1879, and even longer in some countries. In Britain, for example, it started two decades of stagnation known as the "Long Depression" that weakened the country's economic leadership. The Panic was known as the "Great Depression" until the events in the early 1930s took precedence.

The Panic of 1873 and the subsequent depression had several underlying causes, of which economic historians debate the relative importance. Post civil war inflation, rampant speculative investments (overwhelmingly in railroads), a large trade deficit, ripples from economic dislocation in Europe resulting from the Franco-Prussian War (1870-1871), property losses in the Chicago (1871) and Boston (1872) fires, and other factors put a massive strain on bank reserves, which plummeted in New York City during September and October 1873 from $50 million to $17 million.

The first symptoms of the crisis were financial failures in the Austro-Hungarian capital, Vienna, which spread to most of Europe and North America by 1873.