To understand how the Federal Reserve increase money supply, it is important to first understand the meaning of…
Recessions in the US Since the 20th Century and What Caused Them
Recession is defined as the deterioration of a country’s economic activity for two successive quarters. The United States, although widely considered as an economic power, has not been immune to the scourge of recession. In fact, the nation has experienced a number of economic setbacks since the beginning of the 1900s. Here are the various instances of recession that took place in the US since the start of the 20th century and the reasons why they happened.
The Great Depression
Occurring from August 1929 to March 1933, the Great Depression was regarded to by experts as the worst downturn in the history of the United States. Lasting for a total of 43 months, the GDP declined by a whopping -26.7%, while the unemployment rate skyrocketed to 24.9%. The Great Depression was brought about by these factors: the crash of global stock markets, the collapse of American banks, and the emergence of new and extensive tariffs.
Recession in 1937 to 1938
While it is not as worse as the Great Depression, this 13-month event is considered as one of the most dreadful slumps of the 20th century, given the -18.2% decline in GDP, and the 19% peak unemployment rate. Three reasons are cited for this recession: tight fiscal policy after the New Deal, as a means to balance the budget; the Federal Reserve’s tight monetary policy; and the decline in business profits, resulting to a dwindling in investments.
Recession in 1945
Spanning from February to October 1945, this 8-month period saw a -12.7% decline in GDP, and a 5.2% rate of unemployment. This “end of the war” recession was caused by the transition from a battle period economy to a peacetime economy.
Recession in 1949
Although it was a brief and minor downturn, the recession of 1949 caused a minimal -1.7% decrease in GDP and a 7.9% hike in unemployment rate. Economists blame this 11-month spiral on the “Fair Deal” reform of President Harry Truman, as well as tensed government spending.
Recession in 1953
With a -2.6% drop in GDP and a peak unemployment rate of 6.1%, the 1953 recession is said to be caused by the separation of the Federal Reserve from the U.S. Treasury in 1951. As a result, the former implemented stricter policies which led to the 10-month depression.
Recession in 1958
Caused by the tightened monetary policy of 1955 and its subsequent easing in 1957, the 1958 recession resulted to sad economic figures, such as a peak unemployment rate of 7.5%, and a -3.7% decline in GDP.
Recession in 1960 to 1961
When the Federal Reserve decided to hike its interest rates, what transpired next was the 10-month recession which started in April 1960 and ended in February 1961. While the GDP only decreased by -1.6%, the unemployment rate shot up to 7.1%.
Recession in 1969 to 1970
Considered as a mild recession, this 11-month period brought about only a minimal -0.6% decline in GDP. However, the unemployment rate remained high at 6%. Causes of this downturn are numerous, but to name a few– the rising inflation rate resulting from increased deficits, the fiscal tightening secondary to Vietnam war budget deficits, and the tightening of monetary policies or the Federal Reserve’s policy of increasing interest rates.
Recession in 1973 to 1975
This downturn, which spanned for 16 months, saw a -3.2% decline in GDP and a 9% hike in unemployment rate. The recession was brought about by OPEC’s decision to quadruple oil prices, as well as the heightened government spending for the Vietnam War. Further exacerbating the predicament was the oil crisis of 1973, and the stock market crash of 1973-1974.
Recession in 1980
This short recession, which started in January 1980, again was a result of the Federal Reserve’s plan to raise interest rates, to combat the inflation of the 1970s. While the GDP falloff was only -2.2%, the unemployment rate was considered high at 7.8%.
Recession in the Early 1980s
Lasting 16 months, the early 1980s downturn is what economists call as a “double dip” or “W-shaped” recession, which is characterized by a slump, followed by a brief period of growth, and another downturn before the economy manages to recover.
The cause of this recession is mainly the 1979 energy crisis, which forced a sharp hike in oil prices because of the new regime in Iran. The country also imposed a tightened monetary policy which decreased business spending, as an attempt to curb inflation.
As a result, the GDP shrunk by -2.7%, while the unemployment rate peaked at 10.8%, which is the highest rate by far in the history of American recessions.
Recession in the Early 1990s
A brief downturn lasting only 8 months, the recession of the early 1990s was characterized by a -1.4% depreciation in GDP and an increased unemployment rate of 7.8%. Three factors contributed to this event: the 1980’s debt accumulation, the oil price shock of the 1990s, and the rising rate of consumer pessimism.
Recession in the Early 2000s
Putting a halt to the economic growth of the 1990’s was this shallow 8-month recession, which led to a 6.3% increase in unemployment rate and a minute -0.3% decrease in GDP. Here are the factors that triggered this event, to name a few: the September 11 attacks, the Dot-com bubble collapse (Y2K scare), and the decrease in investments and business outlays.
The Great Recession
The downturn of December 2007 to June 2009 was one of the darkest chapters in the American economy, only next to the Great Depression. The GDP declined by as much as -5.1%, while the unemployment rate shot up to 10%.
The biggest cause of the Great Recession was the subprime mortgage crisis, which stabbed the American housing bubble. This, alongside increased food and oil prices, contributed to a global monetary crisis. As a result, the automobile industry collapsed, as well as several financial institutions, such as Lehman Brothers, AIG, Freddie Mac, Fannie Mae and Bear Stearns. In response to the 18-month downturn, the government came up with a fiscal stimulus package amounting to $787 billion and a bank bailout costing $700 billion.