Development of the Housing and Credit Bubbles

Abstract

The U.S. economic downturn that began in December 2007 was the lengthiest and most severe recession since the Great Depression of the early 1930s. It cost the country more than 8 million jobs and some $2,000 billion of income ($6,500 per person, on average) over the course of 2008 and 2009 alone. Plummeting tax revenues forced states and localities throughout the nation to fire teachers, allow roads and bridges to deteriorate, and eliminate essential services for its most vulnerable citizens. The Great Recession of 2007–2009 and the fiscal measures implemented to combat it pushed the already tenuous federal budget deficit well into the danger zone. And these costs diminished only slowly after the recession. If we hope to prevent a crisis of such magnitude from recurring, it is important to think about the development of the forces that caused this economic disaster.