How Did the Financial Crisis Affect the U.S. Economy, Debt, Stock Market (2009)

In the U.S., persistent high unemployment remains as of December 2012, along with low consumer confidence, the continuing decline in home values and increase in foreclosures and personal bankruptcies, an increasing federal debt, inflation, and rising petroleum and food prices. In fact, a 2011 poll found that more than half of all Americans think the U.S. is still in recession or even depression, although economic data show a historically modest recovery. This could be because both private and public levels of debt are at historic highs in the U.S. and in many other countries. The Great Recession affected the entire world economy, with greater detriment to some countries than others, but overall to a degree which made it the worst global recession since World War II. It was a major global recession characterised by various systemic imbalances, and was sparked by the outbreak of the U.S. subprime mortgage crisis and financial crisis of 2007–08. The economic side effects of the European sovereign debt crisis, austerity, high levels of household debt, trade imbalances, high unemployment, and limited prospects for global growth in 2014, continue to provide obstacles for many countries to achieve a full recovery from the recession. The Great Recession only met the IMF criteria for being a global recession, requiring a decline in annual real world GDP per‑capita (Purchasing Power Parity weighted), in the single calendar year 2009.[10][11] Despite the fact that quarterly data are being utilized as recession definition criteria by all G20 members, representing 85% of the world GDP,[18] IMF has decided—because of the absence of a complete data set—not to declare/measure global recessions according to quarterly GDP data. The seasonally adjusted PPP‑weighted real GDP for the G20‑zone, however is a good indicator for the world GDP, and it was measured to have suffered a direct quarter on quarter decline during the three quarters from Q3‑2008 until Q1‑2009, which more accurately mark when the recession took place at the global level.[19] According the U.S. National Bureau of Economic Research (the official arbiter of U.S. recessions) the US recession began in December 2007 and ended in June 2009, and thus spanned over 18 months.[20][21] The years leading up to the crisis were characterized by an exorbitant rise in asset prices and associated boom in economic demand, due in part to an extended period of easily available credit, as central banks maintained low interest rates in the wake of the 2000-2001 U.S. recession.[22] Further, the U.S. shadow banking system (i.e., non-depository financial institutions such as investment banks) had grown to rival the depository system yet was not subject to the same regulatory oversight, making it vulnerable to a bank run.[23] A broader-based credit boom fed a global speculative bubble in real estate and equities, which reinforced risky lending practices. US mortgage-backed securities, which had risks that were hard to assess, were marketed around the world, as they offered higher yields that U.S. government bonds. Many of these securities were backed by subprime mortgages, which collapsed in value when the U.S. housing bubble burst during 2006 and homeowners began to default on their mortgage payments in large numbers starting in 2007.[24][25] 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 15 September 2008, a major panic broke out on the inter-bank loan market. There was the equivalent of a bank run on the shadow banking system, resulting in many large and well established investment and commercial banks in the United States and Europe suffering huge losses and even facing bankruptcy, resulting in massive public financial assistance (government bailouts).[26] The global recession that followed resulted in a sharp drop in international trade, rising unemployment and slumping commodity prices.[27] Several economists predicted that recovery might not appear until 2011 and that the recession would be the worst since the Great Depression of the 1930s.[28][29] Economist Paul Krugman once commented on this as seemingly the beginning of "a second Great Depression."[30] Governments and central banks responded with fiscal and monetary policies to stimulate national economies and reduce financial system risks. The recession has renewed interest in Keynesian economic ideas on how to combat recessionary conditions. Economists advise that the stimulus should be withdrawn as soon as the economies recover enough to "chart a path to sustainable growth". http://en.wikipedia.org/wiki/Great_Recession