aftermath of 2008 recessionBlog

aftermath of 2008 recession

The unemployment rate more than doubled, from less than 5 percent to 10 percent. A number of factors appear to have contributed to the growth in home mortgage debt. By September 2008, Congress approved a $700 billion bank bailout, now known as the Troubled Asset Relief Program. In response to weakening economic conditions, the FOMC lowered its target for the federal funds rate from 4.5 percent at the end of 2007 to 2 percent at the beginning of September 2008.

Home ownership in this period rose from 64 percent in 1994 to 69 percent in 2005, and residential investment grew from about 4.5 percent of US gross domestic product to about 6.5 percent over the same period.

The Great Recession and its Aftermath ... in the fall of 2008, the economic contraction worsened, ultimately becoming deep enough and protracted enough to acquire the label “the Great Recession." A further shift in investors' preference towards assets like The crisis affected all countries in some ways, but certain countries were vastly affected more than others. About 350 members of the Association of Community Organizations for Reform Now gather for a rally in front of the U.S. Capitol March 11, 2008, to raise awareness of home foreclosure crisis and encourage Congress to help LMI families stay in their homes. In September, Lehman Brothers filed for bankruptcy, and the next day the The Fed’s support to specific financial institutions was not the only expansion of central bank credit in response to the crisis. The result was a largeAfter home prices peaked in the beginning of 2007, according to the Federal Housing Finance Agency House Price Index, the extent to which prices might eventually fall became a significant question for the pricing of mortgage-related securities because large declines in home prices were viewed as likely to lead to an increase in mortgage defaults and higher losses to holders of such securities. This expansion began in the 1990s and continued unabated through the 2001 recession, accelerating in the mid-2000s. These purchases were intended to put downward pressure on long-term interest rates and improve financial conditions more broadly, thereby supporting economic activity (Bernanke 2012).The recession ended in June 2009, but economic weakness persisted. But during the early and mid-2000s, high-risk, or “subprime,” mortgages were offered by lenders who repackaged these loans into securities. 2003–2008 Moreover, the historically low level of interest rates may have been due, in part, to large accumulations of savings in some emerging market economies, which acted to depress interest rates globally (Bernanke 2005). FRB New York Bernanke, Ben, “The Global Saving Glut and the U.S. Current Account Deficit,” Speech given at the Sandridge Lecture, Virginia Association of Economists, Richmond, Va., March 10, 2005.Bernanke, Ben,“Monetary Policy and the Housing Bubble,” Speech given at the Annual Meeting of the American Economic Association, Atlanta, Ga., January 3, 2010.Bernanke, Ben, “Monetary Policy Since the Onset of the Crisis,” Speech given at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyo., August 31, 2012.Covitz, Daniel, Nellie Liang, and Gustavo Suarez.

The overall economy peaked in December 2007, the month the National Bureau of Economic Research recognizes as the beginning of the recession.

The Great Recession was the worst post-World War II contraction on record: In November 2008, the Federal Reserve also initiated the first in a series of large-scale asset purchase (LSAP) programs, buying mortgage-backed securities and longer-term Treasury securities. Roughly 40 percent of net private sector job creation between 2001 and 2005 was accounted for by employment in housing-related sectors.The expansion in the housing sector was accompanied by an expansion in home mortgage borrowing by US households. For example, in December 2012, the committee stated that it anticipates that exceptionally low interest rates would likely remain appropriate at least as long as the unemployment rate was above a threshold value of 6.5 percent and inflation was expected to be no more than a half percentage point above the committee’s 2 percent longer-run goal. This strategy, known as “forward guidance,” was intended to convince the public that rates would stay low at least until certain economic conditions were met, thereby putting downward pressure on longer-term interest rates.When the financial market turmoil had subsided, attention naturally turned to reforms to the financial sector and its supervision and regulation, motivated by a desire to avoid similar events in the future. The first signs came in 2006 when housing prices began falling.

Ultimately, home prices fell by over a fifth on average across the nation from the first quarter of 2007 to the second quarter of 2011. Recent improvements in communication and education in those countries has allowed workers in those countries to compete more closely with workers in traditionally strong economies, such as the United States.

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