THE GREAT RECESSION AND ITS AFTERMATH

1. THE GREAT RECESSION AND ITS AFTERMATH Kingsley Njoku Micah Johnson Andy Diep

2. Similarities between the Recession and Depression • Followed periods of extraordinary business investment, productivity growth and economic booms • Recorded sharp declines in business investment and stock values over a period of several years • Business investment recessions that followed periods of excessive investment • Economy and the stock markets reacted to both the increase and the decrease in economic activity

3. Differences between the Recession and Depression Great Depression Great Recession Economy only suffered a modest decline in real Gross Domestic Product (total output of goods and services or GDP) Unemployment rate climbed to around 6 percent Consumer sector continued to increase spending and helped offset the weakness in the manufacturing sector Few bank failures associated with recession • Unemployment rate peak of 25 percent • Consumer spending fell sharply • Financial crisis extended well beyond the stock market- thousands of banks failed

5. Causes Great Depression Great Recession In the 1990s, the government began pushing homeownership, even for uncreditworthy people The government’s urgent desire to bail out various banks and corporations created uncertainty and instability • Federal Reserve raised interest rates in 1929 to halt the resulting boom, that helped choke off investment • President Hoover signed into law the sky-high Smoot-Hawley Tariff, which stifled trade and damaged American exports throughout the 1930s • President Hoover signed a large tax increase into law in 1932, which halted entrepreneurship

6. Effects

7. Effects

8. Key Dates and Macroeconomic Measures • July 2006: US home prices peak • October 9, 2007: Stock market at all-time high; DOW at 14,164 • December 2007: Recession begins! Unemployment rate at 5% • January 30, 2008: Federal government decreases short term interest rates to 3%. • February 13, 2008: George W. Bush signs Economic Stimulus Act. • April 30, 2008: Federal government decreases short term interest rates to 2%. • September 15, 2008: Lehman Bro. files largest bankruptcy case in US history. • October 3, 2008: Bush signs emergency bailout program, established $700 Billion Troubled Asset Relief Program. (TARP) • October 29, 2008: Short term interest rates hit 1%.

9. Key Dates and Macroeconomic Measures cont’d • November 25, 2008: Federal government creates TALF (Term Asset- Backed Securities Lending Facility) • December 16, 2008: First time in history short term interest rates at 0% • December 19, 2008: Government bails out GM & Chrysler from TARP fund. • February 17, 2009: Obama signs $787 Billion stimulus package- tax cuts, money for infrastructure, schools, health care, and green energy. • February 25, 2009: Announcement of “stress tests” to see if banks need more capital. • March 9, 2009: DOW hits lowest point of recession at 6,547. • June, 2009: Great Recession officially ends. • October 2, 2008: Unemployment rate peaks at 10%.

10. Effect of Globalization on Slow Wage Recovery • Immediate job dislocation and/or wage pressure • Return to different kinds of labor inputs as prices fluctuate • Globalization—the international integration of goods, technology, labor, and capital—is everywhere to be seen • Effect on Wages • First, workers employed in industries directly in competition with low-cost imports from abroad can expect to see immediate job dislocation and/or downward wage pressures. Second, as relative prices change across industries, the return to factors of production, including different kinds of labor inputs, can be expected to change as well. A simple example can capture the essential insights of this second impact (which is almost surely the less intuitive one). • Effect on employment recovery • Positive effects can occur as a result of the increased capacity of developing countries to create new opportunities for work and production following the alleviation of price distortions with respect to both labor and capital.

12. Effect of Globalization on Employment Recovery Positive: • Increased capacity for developing countries to offer new job opportunities. Negative: • Advances in technology might take away traditional nature of work. • Developing countries that don’t advance with technology experience hidden unemployment and lack of real wage rates. • Structural adjustments (privatization) imply increase in unemployment because usually accompanied by decreased demand for labor.

13. Effect on 2008 Election • Both Obama & McCain supported Bush’ s bail out of the financial industry (Many disliked- believed of banks acted irresponsibly) • Obama (democrat) pushed policies left but the public’s mood changed to right • Tea Party Movement- Right wing; opposed big government bail out, high taxes, and public debt • Analysis suggest Obama’s victory is a response to short term distress (Usually incumbent party wins when problems occur) • Obama compared to FDR in Great Depression

15. Economic Stimulus Act • Three main parts: An individual tax rebate that the Internal Revenue Service sent out • Two business provisions that encourage investment during 2008 by increasing limits on expensing investment costs and accelerating depreciation of qualifying investments • Stimulus checks increased spending for the typical family by 3.5% when the rebate arrived, boosting overall nondurable consumption by 2.4% in the second quarter of 2008 • Rebate payments for U.S. households were an effective stimulus method by increasing disposable income

16. American Recovery and Reinvestment Act • A $787 billion economic stimulus package designed to create jobs and stimulate economic growth • The Recovery Act also offered financial aid directly to local school districts, expanded the Child Tax Credit, provided funds for an expansion of health workforce training, and funded the computerization of health records • The motive behind the stimulus was to create jobs while promoting investment and consumer spending during the recession

17. ARRA cont’d The bill was strongly resisted by Republicans—it received no Republican votes in the House and only three in the Senate • The economy continued to lose jobs, forcing administration officials to admit that their initial predictions for job growth were too optimistic. • Some critics continued to argue that the stimulus package was too costly for the limited economic gains attributable to it, while others argued that its gains were limited because the stimulus was not large enough

18. Analyze federal debt in the Bush and Obama years Bush Obama Obama- raised debt by $4.939 trillion (2012 national debt = $15.566) • Bush- Raised debt by $4.899 Trillion (Last day of term national debt = $10.626 trillion

19. Citations • "Federal Reserve Bank of San Francisco." SF Fed. Web. 16 May 2014. • "Consumer Spending Continued to Increase." Web. 16 May 2014. • "Comparing the Great Depression to the Great Recession.": The Freeman : Foundation for Economic Education. Web. 19 May 2014. • Hower, Sara, and Kathleen Uradnik. "American Recovery and Reinvestment Act." American Government. ABC-CLIO,2014. Web. 19 May 2014. • "Average Impact of the 2008 Rebate." Print. • "Comparing Economic Crises." Mrs. Myers. Web. 20 May 2014.Cbpp.org • Epi.org • Csmonitor.com • http://www1.aucegypt.edu/src/globalization/labor_Market.htm • http://www.vanderbilt.edu/csdi/research/CSDI_WP_06-2013.pdf • http://www.outsidethebeltway.com/has-national-debt-increased-more-under-obama-than-bush/ • American History: The Great Recession and the 2008 Election