The last time the United States (and, by extension, the world) faced a major recession back in 2007. By the time economists called an end to the Great Recession, in June 2009, U.S. real Gross Domestic Product (GDP) had tumbled by 4.3-percent since its peak in Q4-2007. Unemployment was at 5-percent in Q4-2007, and rose to 9.5-percent in Q2-2009, topping-off at 10-percent by year’s end. It was the longest recessionary period since World War II, and every sector of the economy felt its brunt. Now, looking back at how events unfolded then, including government responses to the crisis, and putting those responses into today’s perspective, one can’t help but feel a sense of deja vu!
Are We There Yet?
After trying to respond to the crisis, unsuccessfully, with traditional methods (interest rate cuts, fiscal stimulus, tax cuts), the Federal Reserve pivoted to a slew of nontraditional tools, including the large-scale asset purchase (LSAP) programs, and purchasing mortgage-backed securities (MBS) of Fannie Mae, Freddie Mac, and the Federal Home Loan banks.Unfortunately, some analysts attribute the ensuing recession to some of these programs, which saw business productivity decline, while inflation steadily rose. Back then, there were a chorus of voices that advocated bolder action sooner; much like the voices we heard until recently about the current state of the economy. Back then, regulators sought to allay fears of the business community, much like we saw them do until a few months ago, with catch words like “transitionary”, “not entrenched”, and “temporary”. Still, the official “party line” now, is: Nothing to be concerned about.
