1. The causes of the 2000s recession

2. Popping bubbles!

3. Definitions GDP (Gross Domestic Product) = the best statistic showing a country’s wealth –Consumer spending + Investments + Government Spending + Exports – Imports = GDP Recession= –Technically, when a country’s GDP falls for two consecutive quarters (6 months) –But basically, a bad economic time in a country Depression –A really bad and/or long recession (term first used by Hoover… before then was called “panic” or “crisis”)

4. Tulip mania! Goods exchanged for one bulb: 2 tons of wheat 4 tons of rye 4 fat oxen 8 fat pigs 12 fat sheet 4 hogsheads of wine 4 tons of wine 2 tons of butter 1,000 pounds of cheese 1 bed 1 suit of clothes 1 silver drinking cup Could earn $60K trading tulips per month… story of sailor who ate “onion,” jailed for months CRASH: One person defaults on contract; later gov’t was accepting 10% payment… When: 1630s Where: Holland What: Tulip prices rose like crazy, and then dropped like crazy

5. The recession Technically, the recession lasted 18 months, from December 2007 to June 2009

6. Unemployment Unemployment rate was 4.8 percent in February 2008… today it’s 6.1 percent

7. Historical unemployment

8. What caused it?

9. 1. Housing prices rose too high –The economy was going good, but not that good –Because prices kept rising, everyone thought investing in real estate was a “sure thing” –And since everyone wanted a part of that “sure thing”, prices kept going up (law of supply and demand) –People were buying homes for more money than they could afford, figuring the profits they made would pay their debts, and then some

10. What caused it? 2. Banks were lending people too much –Banks make money by lending to lots of people –Normally, though, banks have strict rules on who qualifies to borrow money, to make sure those loans are paid back –But banks relaxed those rules before the recession. They figured there was less risk of people not being able to pay back loans because: People who borrowed money would spend them on homes, and that’s a “sure thing” The interest rates were low, so people wouldn’t have to pay back as much Unemployment rates were low

11. What caused it? 3. Expensive gas drove up prices of goods –Rose steadily from about 2002 to 2004, then really started rising 2005-2008 –They affect everyone People who drive, obviously Goods transported by trucks (which is everything) So prices of everything (food, especially) rose

12. What caused it? 4. The chain reactions –As prices of everything rose, people can’t afford to buy as much –And with people not buying as much, companies that sell goods (which is basically all of them) are losing money –And those companies are laying off workers –Which causes those unemployed workers to buy even less –Meanwhile, people couldn’t afford the mortgages on their homes, so they were selling –And banks weren’t getting their loans paid back, so they were going out of business –And there were a lot more people who wanted to sell rather than buy homes, so prices of homes dropped

13. The effects Higher unemployment rate (peak of 10 percent) Salaries decreased (or didn’t rise much) Overall, 25% said they were laid off as a result of recession, and 80% of people said they knew someone close who was Reduction in industrial output and trade (about 15-20 percent cuts in 2008-2010) Stores and companies out of business (malls, etc) Travel decreased (staycations, etc) Reduced investment Cutbacks in government spending