The Financial Crisis and the Great Recession in the United States
The Great Recession in the USA began in December 2007. When it formally ended 18 months later (June 2009), it proved to be the longest economic contraction since the Great Depression. The 16-month recessions of 1973–1975 and 1981–1983, although close in duration to this Great Recession, did not parallel the severe financial crisis of the kind the USA experienced throughout 2008. The federal government’s refusal to rescue the collapsing investment giant Lehman Brothers in September 2008 heightened the level of uncertainty regarding the depth and duration of the new recession, which in turn led to a freezing of the credit market. Giant financial institutions such as Citigroup, Bank of America, and American International Group (AIG) were in imminent danger of insolvency. Within 2 years, a significant gap (8 %) opened between the economy’s potential and actual output despite efforts of the monetary and fiscal policymakers to reverse the decline.
KeywordsInterest Rate Monetary Policy Fiscal Policy Federal Reserve Credit Default Swap
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