What is a Recession?
The Business Cycle Dating Committee (BCDC) defines a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. The average recession lasts about a year.
Causes of the Current Recession
The current recession's roots were in 2006. A large part of the national budget had been shifted to the war with Iraq. Rapidly rising medical and pension costs for the elderly showed the lack of stable economic infrastructure. Soaring oil prices threatened inflation and unemployment. Declining housing prices caused many homeowners to foreclose, when they realized that they would lose money by selling their houses for less than their mortages. This caused banks who had bought mortgage-backed securities to panic. They were facing huge losses. By August 2007, banks became afraid to lend to each other because they didn't want these toxic loans as collateral. This led to the $700 billion bailout, and by December 2008, employment was declining faster than in the 2001 recession. It was the deepest and longest economic downturn since the Great Depression. In 2009, the government launched the $700 billion Troubled Asset Relief Program (TARP). It was designed to spend $185 billion in 2009. It halted a four-quarter decline in GDP by Q3 of that year, thus ending the recession. In 2009, the president signed a bill providing an aditional $787 billion stiumulus to be used over 10 years. Two-thirds was to be on additional spending and the other third on tax cuts. However, about 2/3 was used by the end of 2010. USA now has the highest debt in the entire world, with a whopping $13.98 trillion US in debts.