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US economic system in 2000-2010

Major Economic Events and Crisis in 2000-2010


The decade of 2000-2010 has been one of the most influential in the history of the United States. During these 10 years, the economy of the USA has been endured with terrorist attacks, two economic recessions, Wars in the Middle East, a housing meltdown, and the downturn in the U.S. stock market. Due to the importance of the following period in the U.S. history and economic development, this paper seeks to analyze the early recession period in the U.S. in 2000s and to discuss causes and effects of the Great Recession in 2007-2009. Moreover, this paper seeks to establish the fact that these two economic recessions have had the biggest influence on further economic development of the USA.

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In 1983, unemployment passed the 10% mark. Household networks experienced the largest loss in wealth over the past fifty years. The most important economic events of the study period that significantly affected the further development of the economy were the early 2000s recession and the Great Recession in December 2007-June 2009. In addition, there were other important events. On January 1, 2002, euro was introduced in physical coins and banknotes. From 2002, the new currency has been strengthened, and in 2008, it increased to 1.6 in comparison to the US dollar. Euro gave flexibility to the financial markets for the new European Union. At that time, it has become one of the main global reserve currencies.

In 2005, the rewritten Bankruptcy Law was introduced. The bill was called the “dream bill for credit card and financial service companies”. The law created the Debt Slavery. It was the biggest rewrite of law in a quarter century. Moreover, the law was introduced at the period when the household debt was record high.

In 2006, Iran announced the plan to use euro instead of dollar in the state budget. In February 2008, Iran initiated activities to liquidate dollar from the state finances. At that time, oil and petrochemical bourse was opened in the Kish Island, and all main currencies of the world got the way for oil transactions. The opening of Iran’s Oil Bourse brought a lot of negative implications to the U.S. economy.

Early 2000s Recession and Its Impact on the U.S. Economy

The recession that took place in the USA in the early 2000s had a number of reasons. One of the reasons was the collapse of the company dot.com bubble. The company was created on the wave of rising of the Internet sites and the tech industry that swept the world in the 2001. As a matter of fact, it was a stock market bubble. Many investors lost their money, which resulted in the economic recession. The period between 1995 and 2001 was the time of big investments and speculations in the Internet firms. It was the period of the main jump in the number of Internet users and growth of potential consumers. Consequently, many Internet start-ups were created. Investors were interested in business practices. In that period, the stock market dramatically rose in the USA. Unfortunately, further decline in business spending and market correction caused the stock market fall. Subsequently, such dot-com companies began to fall. A rise of outsourcing was another factor in the issues of the bubble because it led to unemployment among the programmers. Another reason of the recession was the September 11 terrorist attacks. People stopped spending money and the economy of USA took a hit.

Since the time of the Great Depression, the stock market for the first time has been closed for four days after the attacks. The Dow promptly fell to 7.13%. It was the worst Dow’s index for a one-day drop. In the first quarter of 2001, the US economy had contracted 1.3%. A series of accounting scandals during 2001-2002 also had impact on the U.S. economy. It did not have the impact on the market as a whole, but the consumers’ confidence sharply declined. In fact, during that period, the economy of the New York state lost near $2.9 billion, according the researches of the Brookings Institution (Watkins, 2002). Consequently, the losses in local governments contributed to the reducing of economic activity in the state.

Recession is usually defined by decline in the GDP. Such definition indicates that the recession started in the U.S. in the third quarter of 2001. The Table 1 demonstrates the GDP and constant dollar (1996) for the sixteen quarters.

One can make a conclusion that the current value of the GDP went down in the last two quarters of 2001. At the same time, in the third and the fourth quarters the real value of the GDP increased from 0.2% to 1%. This means that economic problems developed from the middle of 2000. The level of employment has been decreasing since the beginning of 2001, and unemployment that had been declining until 2000 began to rise in 2001 (2002). Government budget is also one of the elements of the statistics. The Federal budget has gone into surplus from 1998, but in 2001, the level of the surplus began to decline (Table 2).

Causes and Effects of the Great Recession in 2007-2009

The Great Recession that began in 2007 and ended in 2009 was characterized by the 18-month decline in economy that was the longest since the time of the Great Depression. The main reason of this recession was the collapse of the U.S. housing market, when large amounts of mortgage-backed securities lost their value. In addition, American financial institutions sold the mortgage-backed securities at the unprecedented levels in mid-2000 during the housing boom. These securities rapidly lost their value after market collapse in 2007. A lot of banks and financial institutions in the USA and Europe lost the solvency.

Despite the fact that the global economy was in the deep-credit crisis that began in 2007, the situation deteriorated after the bankruptcy of the Lehman Brothers in September 2008. It was fourth-largest investment bank in the USA. The threat of bankruptcy spread to other economies all over the world, especially to Europe. The bankruptcy was the largest in history as its assets of $639 billion far surpassed the assets of such bankrupt giants as the WorldCom and the Enron (“Case study: The collapse of Lehman Brothers”, 2009). The company had 25,000 employees all over the world. Furthermore, Lehman was the largest victim of the mortgage crisis.

It is considered that the Lehman Brothers bankruptcy was the decision of the government. However, government refused to bail the bank that froze credit markets. The main problem with Lehman for the U.S. economy was that bank made assets that were tied to worthless mortgages, with highly leveraged bets (“Case study: The collapse of Lehman Brothers”, 2009). Later, the default rates on the mortgages increased. It was the reason of losing the value of Lehman assets. The economists considered that Lehman was not the cause of the great recession, but its messenger.

The result of bursting the housing bubble was the sharp decline in consumer spending. This decline and chaos in the financial market caused the collapse in the business investment. Unemployment rates are the most common indicator of a recession. In December 2007, the national unemployment rate was 5%, and it increased to 9.5% by June 2009. In October 2009, the unemployment rate achieved the maximum of 10%; It peaked at 10.8% in September 1982 (U.S. Bureau of Labor Statistics, 2012). It should be noted that there was the highest number of long-term unemployed people (27 weeks and longer) in the post-recession period.

Historically, the unemployment rates of African Americans and Latin Americans have been higher than the rate of the whites; but during the last recession, the unemployment rate was on the same level for the African Americans, Latin Americans, and whites.

The level of unemployment also was different in all regions. During the last recession, the lowest rates among 20 states (5.2%) had Nebraska, North Dakota, and South Dakota. The highest unemployment rates (10.0%) had Michigan, Nevada, and California (U.S. Bureau of Labor Statistics, 2012). The largest declines in employment were experienced in the industries, such as construction and manufacturing. These industries endured the largest percent of declines in the employment in the history of the post-WW II era.

The economy of the USA was in the epicenter of the crises and fell into 21st recession in December 2007. According to experts, on the one hand, the American economy shrunk by 2.7% during 2009 (U.S. Bureau of Labor Statistics, 2012). On the other hand, this decline is smaller than in other countries of G20 and countries with the advanced economies. The crisis had impact on economies across the planet. Most countries with the advanced economies have joined the Great Recession, especially those, economies of which were exposed through financial and trade channels.

Despite globalization, some countries in the Asian region were able to avoid the crisis. Some low-income countries have been growing during the Great Recession; among them are Ethiopia and Uganda.

The countries in Central and Eastern Europe were affected the most because of the credit crunch and domestic imbalances. Such countries as Ukraine, Latvia, Lithuania, Estonia, and Armenia experienced a decline in the GDP of 14% and more in 2009 (Table 3).

Most countries in Latin America also fell into recession because of the links with the economy of the USA. The economy contraction of 2.1% was fixed in 2009. Mexico has been affected the most: the economy contracted by 7.1 % in 2009. In general, most low-income countries avoided the crisis. The economies of those countries have been supported by domestic demand and government spending (U.S. Bureau of Labor Statistics, 2012).

The governments all over the world recognized the severity of this crisis and begun to take action to avoid the collapse of the economy. The main efficient interventions were replenishment of the financial system, reduction of interest rates, and the additional fiscal spending. These measures helped prevent the countries from further recession and keep jobs where it was possible.


Having analyzed the early recession period in the U.S. in 2000s and having discussed the main causes and effects of the Great Recession in 2007-2009, one has come to the conclusion that these two economic recessions have had the most influence on further economic development of the USA. Moreover, the main damage has been caused by the consequences of these recessions, which defined further U.S. development.

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