Abstract
The chapter presents the main aspects of the US financial and real crises that subsequently spread to many other industrialized countries. The great recession originated from the 2007 US sub-prime crisis, which however had several deeper causes: the structural difficulties in the US balance of current accounts, the rising economic inequalities, and the mismanagement of monetary and housing policies. The latter had favored the asset inflation both in the construction industry and in the financial market. The rapid transition from the monetary to the real crises is mainly explained through a series of critical stock-flow feedbacks or vicious circles. Some remedies to avoid other future great financial and real crises are proposed. The chapter is concluded by a comparison between some important aspects of the great depression of the 1930s and the great recession.
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Notes
- 1.
- 2.
See Fratianni (2008), pp. 5–6.
- 3.
See Attali (2008), pp. 57–59.
- 4.
After 2011, with the economic recovery and the following expansion, there was also a gradual recovery of housing prices in current terms, which in 2017, returned in several zones to levels close to those prevailing in the first quarter of 2007.
- 5.
- 6.
In 2009, Obama’s administration introduced some important measures in favor of people who risked losing the house due to foreclosures, but the implementation of these measures was partial, difficult, and fragmented.
- 7.
Quantitative easing (QE) is a strong and unconventional expansionary monetary policy aiming at rapidly expanding money supply and reducing interest rates to very low levels. The central bank buys enormous volumes of securities (government bonds and other securities) trying to expand banks’ liquidity and lending.
- 8.
Washington Mutual and Bear Stearns had been then acquired by JP Morgan Chase, while a part of Lehman Brothers was bought by the Japanese bank Nomura. Since 2007–2008, also in Europe, there was a long series of bank failures but some giant banks, such as Bradford and Bingley, Northern Rock, Fortis, Hypo real estate, ING, were saved through public interventions.
- 9.
See, for a more detailed analysis, Valli (2013).
- 10.
From 2007 to 2009, in the US, per capita wealth decreased by 26%, while the net national wealth to net national income ratio declined from 5.4 to 4.3. See WID World (2017), http://wid.world/country/usa/.
- 11.
See for a comparative analysis between the US and the European Union, Valli (2017).
- 12.
Some of the psychological mechanisms operating in the great recession were, for example, explored in Akerlof and Shiller’s volume on Animal Spirits (2010) and in several of Richard Thaler’s contributions.
- 13.
However, in some European countries, such as Greece, Spain, Portugal, and Italy, the great recession has been longer than the consequences of the great depression in such countries.
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Valli, V. (2018). The Great Recession. In: The American Economy from Roosevelt to Trump. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-96953-4_9
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DOI: https://doi.org/10.1007/978-3-319-96953-4_9
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