The author of this report is asked to answer a series of five questions relating to the economic trends and events of the last two decades in the United States. The first question to be answered is the key events and trends between 2003 and 2010. The second question asks about the key events of the credit crisis in 2006. The third section will regard the effects felt throughout the economy. Next, the efforts of the United States government to revive the economy will be reviewed. Lastly, the impact on the global economy will be assessed. While the United States economy did not entirely collapse by any means, the juggernaut of the late 1980s or even the late 1990s is far from coming back and the sustained job growth in the mid-2000s may have been deceiving.
The year 2003 was just three to four years removed from the mini-recession that started just as President George W. Bush took office and was made much worse when 9/11 occurred in September 2001. Up until the problems of those few years, unemployment consistently trended down for an entire decade but the recession and 9/11 caused a fairly sharp spike into the six to seven percent range before it started falling again all the way down to the sub-five percent range. This valley ended in 2007 and 2008 after the credit crunch of 2006 took effect and unemployment shot up north of ten percent and is still above seven percent to this very day (WashingtonPost.com). As for gross domestic product (GDP) growth or loss, the year 2003 represented the first spike to above five percent growth since before the aforementioned mini-recession that started just before 9/11. GDP growth then fluttered back and forth in the two to three percent range until the 2006 credit crunch and then zero growth was touched upon several times until 2008 when the bottom dropped out through around the beginning of 2009. The Great Recession, according to most economists, ran from late 2007 to mid-2009 (TradingEconomics.com). In total, 7.3 million jobs were lost during the Great Recession (MoneyWatch).
The credit crisis of 2006 is what led to the events that lambasted the United States economy in late 2007, all of 2008 and early 2009 and is still being felt today in many ways. The year 2006 marked the year when much of the subprime mortgage debt in the American economy crashed the market. Indeed, nine out of ten subprime mortgages were adjustable-rate mortgages and this became a huge factor one to two years later when the economy in the United States went south and everyone’s adjustable rates spiked upwards. This caused a domino effect of mortgages being foreclosed on or at least short-sold due to mortgage payers not being able to afford their mortgage given the fact that their payments had spiked up. The year 2006 also marked the point in which home prices starting going down and this led to mortgage holders owing more on their mortgage than the house was worth. The heavy use of no-money-down mortgages helped aggravate this trend as well (USAToday).
As was started to be mentioned above, there were a number of effects that were felt by some or all of the economy. As mentioned before, mortgages became cost-prohibitive in terms of payment and even fixed-rate mortgage holders ended up with houses that they had negative equity in. One example of a reaction to this is that even people that could make their mortgage payment would walk away from their mortgage rather than pour money down a proverbial toilet. However, the pain felt by the United States economy did not remotely stop in the housing market. Unemployment shot up to north of ten percent because employers were themselves feeling the effect of the devastated credit markets. The brunt of those layoffs and other firings was borne by the middle- and working classes and those jobs have largely still not come back like the upper-echelon jobs of the United States economy. Lending of all sorts was greatly restricted for a time and is still pretty tight. This includes car loans, personal loans, and especially mortgages. The days of zero-down mortgages are basically over for many to most and even the Federal Housing Administration (FHA) loans are requiring more down than they did before although there are some exceptions (Lerner)(FHA).
The Great Recession was rather stubborn, but the United States certainly made strong efforts to revive the economy between 2003 and 2010. The start of these efforts during that time horizon was the Bush tax cuts that were implemented in 2003. Personal income tax rates were slashed across the board and those tax cuts remained in effect until beyond 2010 but were eventually sunset. The playing field remained pretty stable after that until the credit crunch and Great Recession started in 2006 and 2007. This brought on the Troubled Asset Relief Program (TARP) and the stimulus package agreed to right after President Obama took office in 2009 (Federal Reserve). There have been other piecemeal measures like the HIRE Act in 2010 to incentivize hiring, the Social Security tax holiday for employees and the quantitative easing measures of the Fed (IRS). The economy, at least temporarily, usually reacts to these measures fairly well but the economy to this very day is still in low gear from an investment and hiring standpoint.
The old saying goes that when the United States economy gets sick, the world economy catches a cold. To be sure, the United States was far from being the only country or area of the world that had some major economic issues. Europe, in particular, was another area of the world with Spain, Poland, Portugal and especially Greece all having credit/deficit issues. Greece is still in a mess in many ways and the United States economy is not growing nearly fast enough for some, but much of the aftermath of the Great Recession and the preceding credit crunch most seems to have settled. However, it would not take much of a shock to any major world economy to revert things back to chaos and economic disorder. The adage that started this paragraph can probably be applied to any major national economy like China or the United States. The same could also be said of an economic collective like the European Union.
The blowback from the credit crunch and the Great Recession was blistering and laid bare the bad habits of the preceding years and decades. Lending money in a very risky fashion, securitization of those debt portfolios, allowing people to get into houses with no equity and thus no room for error or the use of adjustable-rate mortgages, in general, all led to some horrible consequences and many banks and other financial institutions are paying fines or other penalties for their alleged or admitted misdeeds. On the other hand, the people of the United States have had to learn a lesson, often a hard lesson, about over-extending one’s self, entering into mortgages or other agreements without knowing and understanding the risks and otherwise spending money that is by no means guaranteed. It remains to be seen if the government or the populace of the United States has learned its lesson or not.
FHA. "Federal Housing Administration/U.S. Department of Housing and Urban Development(HUD)." Federal Housing Administration/U.S. Department of Housing and urban development (HUD). N.p., 16 Nov. 2013. Web. 16 Nov. 2013. <http://www.fha.gov>.
Federal Reserve. "Troubled Asset Relief Program (TARP) Information." FRB: TARP program information. N.p., n.d. Web. 16 Nov. 2013.<http://www.federalreserve.gov/bankinforeg/tarpinfo.htm>.
IRS. "HIRE Act: Questions & Answers." Internal Revenue Service. N.p., 16 Nov. 2013. Web. 16Nov. 2013. <http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/HIRE-Act:--Questions-and-Answers-for-Employers>.
Lerner, Michele. "Need a zero-down mortgage? Look outside the city." Real Estate. N.p., 16Nov. 2013. Web. 16 Nov. 2013. <http://realestate.msn.com/article.aspx?cp-documentid=27521921>.
Money Watch. "Great Recession Ended in June 2009, Panel Says." CBSNews. CBS Interactive,21 Sept. 2010. Web. 16 Nov. 2013. <http://www.cbsnews.com/2100-500395_162-6884342.html>.
TradingEconomics.com. "United States GDP Growth Rate." Trading Economics. N.p., 16 Nov.2013. Web. 16 Nov. 2013. <http://www.tradingeconomics.com/united-states/gdp-growth>.
USAToday. "USA TODAY." USATODAY.COM. N.p., 28 Jan. 2011. Web. 16 Nov. 2013.<http://usatoday30.usatoday.com/money/economy/2011-01-28-financial-crisis-timeline_N.htm>.
WashingtonPost.com. "A Brief History of US Unemployment." Washington Post. N.p., 16 Nov.2013. Web. 16 Nov. 2013. <http://www.washingtonpost.com/wp-srv/special/business/us-unemployment-rate-history/>.