Wednesday, April 11, 2012

Recession, Depression

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The Great Depression: CrCo US History > .
Recession & Depression - anf >> .

12 - 2008 Financial Crisis ..


In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster (e.g. a pandemic). In the United States, it is defined as "a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales". In the United Kingdom, it is defined as a negative economic growth for two consecutive quarters.

Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply or increasing government spending and decreasing taxation.

Put simply, a recession is the decline of economic activity, which means that the public has stopped buying products for a while which can cause the downfall of GDP after a period of economic expansion (a time where products become popular and the income profit of a business becomes large). This causes inflation (the rise of product prices). In a recession, the rate of inflation slows down, stops, or becomes negative.
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An economic depression is a period of sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a recession, which is a slowdown in economic activity over the course of a normal business cycle.

Economic depressions are characterized by their length, by abnormally large increases in unemployment, falls in the availability of credit (often due to some form of banking or financial crisis), shrinking output as buyers dry up and suppliers cut back on production and investment, more bankruptcies including sovereign debt defaults, significantly reduced amounts of trade and commerce (especially international trade), as well as highly volatile relative currency value fluctuations (often due to currency devaluations). Price deflation, financial crises, stock market crash, and bank failures are also common elements of a depression that do not normally occur during a recession.
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The Great Depression was a severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States. The timing of the Great Depression varied across the world; in most countries, it started in 1929 and lasted until the late 1930s. It was the longest, deepest, and most widespread depression of the 20th century. The Great Depression is commonly used as an example of how intensely the global economy can decline.

The Great Depression started in the United States after a major fall in stock prices that began around September 4, 1929, and became worldwide news with the stock market crash of October 29, 1929, (known as Black Tuesday). Between 1929 and 1932, worldwide gross domestic product (GDP) fell by an estimated 15%. By comparison, worldwide GDP fell by less than 1% from 2008 to 2009 during the Great Recession. Some economies started to recover by the mid-1930s. However, in many countries, the negative effects of the Great Depression lasted until the beginning of WW2.

The Great Depression had devastating effects in both rich and poor countries. Personal income, tax revenue, profits and prices dropped, while international trade fell by more than 50%. Unemployment in the U.S. rose to 23% and in some countries rose as high as 33%Cities around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming communities and rural areas suffered as crop prices fell by about 60%. Facing plummeting demand with few alternative sources of jobs, areas dependent on primary sector industries such as mining and logging suffered the most.

Economic historians usually consider the catalyst of the Great Depression to be the sudden devastating collapse of U.S. stock market prices, starting on October 24, 1929. However, some dispute this conclusion and see the stock crash as a symptom, rather than a cause, of the Great Depression.

Even after the Wall Street Crash of 1929, where the Dow Jones Industrial Average dropped from 381 to 198 over the course of two months, optimism persisted for some time. The stock market turned upward in the early 1930, with the Dow returning to 294 (pre-depression levels) in April 1930, before steadily declining for years, to a low of 41 in 1932.

At the beginning, governments and businesses spent more in the first half of 1930 than in the corresponding period of the previous year. On the other hand, consumers, many of whom suffered severe losses in the stock market the previous year, cut their expenditures by 10%. In addition, beginning in the mid-1930s, a severe drought ravaged the agricultural heartland of the U.S.

Interest rates dropped to low levels by the mid-1930, but expected deflation and the continuing reluctance of people to borrow meant that consumer spending and investment remained low. By May 1930, automobile sales declined to below the levels of 1928. Prices, in general, began to decline, although wages held steady in 1930. Then a deflationary spiral started in 1931. Farmers faced a worse outlook; declining crop prices and a Great Plains drought crippled their economic outlook. At its peak, the Great Depression saw nearly 10% of all Great Plains farms change hands despite federal assistance.

The decline in the U.S. economy was the factor that pulled down most other countries at first; then, internal weaknesses or strengths in each country made conditions worse or better. Frantic attempts by individual countries to shore up their economies through protectionist policies – such as the 1930 U.S. Smoot–Hawley Tariff Act and retaliatory tariffs in other countries – exacerbated the collapse in global trade, contributing to the depression. By 1933, the economic decline pushed world trade to one third of its level compared to four years earlier.
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The Great Recession was a period of marked general decline (recession) observed in national economies globally that occurred between 2007 and 2009. The scale and timing of the recession varied from country to country. At the time, the International Monetary Fund (IMF) concluded that it was the most severe economic and financial meltdown since the Great Depression. One result was a serious disruption of normal international relations.

The causes of the Great Recession include a combination of vulnerabilities that developed in the financial system, along with a series of triggering events that began with the bursting of the United States housing bubble in 2005–2006. When housing prices fell and homeowners began to abandon their mortgages, the value of mortgage-backed securities held by investment banks declined in 2007–2008, causing several to collapse or be bailed out in September 2008. This 2007–2008 phase was called the subprime mortgage crisis. The combination of banks unable to provide funds to businesses, and homeowners paying down debt rather than borrowing and spending, resulted in the Great Recession that began in the U.S. officially in December 2007 and lasted until June 2009, thus extending over 19 months. As with most other recessions, it appears that no known formal theoretical or empirical model was able to accurately predict the advance of this recession, except for minor signals in the sudden rise of forecast probabilities, which were still well under 50%.

The recession was not felt equally around the world; whereas most of the world's developed economies, particularly in North America, South America and Europe, fell into a severe, sustained recession, many more recently developed economies suffered far less impact, particularly China, India and Indonesia, whose economies grew substantially during this period. Similarly, the oceanic region suffered minimal impact, in part due to their proximity to the Asian markets.
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The COVID-19 recession, which began in February 2020, is the worst global economic crisis since the Great Depression.

Following a global economic slowdown during 2019 that saw stagnation of stock markets and consumer activity, the COVID-19 lockdowns and other precautions taken during the COVID-19 pandemic threw the global economy into crisis. Within seven months, every advanced economy had fallen to recession or depression, while all emerging economies were in recession. Modeling by the World Bank suggests that in some regions a full recovery will not be achieved until 2025 or beyond.

The recession has seen unusually high and rapid increases in unemployment in many countries. By October, more than 10 million unemployment cases had been filed in the United States, swamping state-funded unemployment insurance computer systems and processes. The United Nations (UN) predicted in April 2020 that global unemployment will wipe out 6.7% of working hours globally in the second quarter of 2020—equivalent to 195 million full-time workers.] In some countries, unemployment is expected to be at around 10%, with more severely affected nations from the COVID-19 pandemic having higher unemployment rates. Developing countries were also being affected by a drop in remittances, exacerbating COVID-19 pandemic-related famines.

The crisis' onset coincided with the 2020 stock market crash, which saw major indices drop 20 to 30% in late February and March. Recovery began in early April 2020, and many market indices recovered or even set new records by late 2020. 

The recession and the 2020 Russia–Saudi Arabia oil price war led to a drop in the price of oil; the collapse of tourism, the hospitality industry, and the energy industry; and a downturn in consumer activity in comparison to the previous decade.
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The COVID-19 pandemic had a deep impact on the Canadian economy, leading it into a recession. The governments' social distancing rules had the effect of limiting economic activity in the country. Companies started considering mass-layoffs of workers, which was largely prevented by the Canada Emergency Wage Subsidy. But despite these efforts, Canada's unemployment rate was 13.5% in May 2020, the highest it has been since 1976.

Many large-scale events that planned to take place in 2020 in Canada were canceled or delayed. This includes all major sporting and artistic events. Canada's tourism and air travel sectors were hit especially hard due to travel restrictions. Some farmers feared a labour shortfall and bankruptcy.

COVID-19 affected consumer behaviours. In the early stages of the pandemic, Canadian grocery stores were the site of large-scale panic buying which lead to many empty shelves. By the end of March, most stores were closed to walk-in customers with the exception of grocery stores and pharmacies, which implemented strong social distancing rules in their premises. These rules were also implemented in other Canadian businesses as they began to re-open in the following months.

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