Economic Recession

Economic Recession 

Economic recession is a period of general economic decline and is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. Generally, a recession is less severe than a depression. The blame for a recession generally falls on the federal leadership, often either the president himself, the head of the Federal Reserve, or the entire administration.

Factors that Cause Recessions

High interest rates are a cause of recession because they limit liquidity, or the amount of money available to invest.

Another factor is increased inflation. Inflation refers to a general rise in the prices of goods and services over a period of time. As inflation increases, the percentage of goods and services that can be purchased with the same amount of money decreases.

Reduced consumer confidence is another factor that can cause a recession. If consumers believe the economy is bad, they are less likely to spend money. Consumer confidence is psychological but can have a real impact on any economy.

Reduced real wages, another factor, refers to wages that have been adjusted for inflation. Falling real wages means that a worker's paycheck is not keeping up with inflation. The worker might be making the same amount of money, but his purchasing power has been reduced.

Recessions and Gross Domestic Product

An economic recession is typically defined as a decline in gross domestic product (GDP) for two or more consecutive quarters. GDP is the market value of all goods and services produced within a country in a given period of time. An example of one type of GDP would be the value of all the automobiles produced within the United States for one year. GDP only takes into account new products that have been manufactured. Therefore, if a pre-owned car lot were selling pre-owned cars, they would not be included in the GDP calculation

The Recession of 2008 (also called the Recession of the late 2000s or the Great Recession) was a major worldwide economic downturn that began in 2008 and continued into 2010 and beyond. It was caused by the Financial Crisis of 2008 it was by far the worst recession since the Great Depression of the 1930s. The worldwide recession hit bottom in December 2009; however after five years there were few signs that the American economy started moving upward again. Five million of the 8 million jobs lost did not return - despite an increase in population of 10 million over the same span of time covering President Barack Obama's first term.

Greece, Portugal and Ireland remain in serious trouble, while China and Brazil rebounded and are growing rapidly. Concerning the United States economy, some proponents of free market capitalism declare that Federal Reserve  and the United States Congress should not have bailed out failing firms and instead should have allowed free market capitalism to recover as it did in the depression of 1920, which recovered without government intervention (free market capitalists assert that government intervention can drag out recessions and depressions).A 2005 study found that government corporate bailouts are often done for mere political considerations and the economic resources allocated exhibit significantly worse economic performance than resources allocated using purely business considerations. Likewise in the U.S. the economy has stabilized but showed little signs of recovery during President Obama's first term, apart from the stock market going up. Serious weaknesses continued in housing, commercial real estate, banking, automobiles, and retail trade. Unemployment remained above 8% til October 2012 with conditions especially poor in California, Michigan and South Carolina.