Why was the 2008 global financial crisis referred to as the 'Great Recession'?
Hello, let me try to explain this to you; I hope it helps you understand.
You can think of it this way: a typical economic recession is like catching a cold – it's uncomfortable, but after some medicine and rest, you usually recover. The 2008 crisis, however, was like contracting severe pneumonia. Its symptoms were severe, it lasted a long time, and it nearly killed the patient. That's why the word 'Great' was added, making it the 'Great Recession'.
This designation primarily serves to distinguish it from ordinary, cyclical economic downturns, emphasizing its severity. Specifically, its 'greatness' lies in the following aspects:
1. Unprecedented Depth and Breadth
- Depth: In a typical recession, GDP (Gross Domestic Product) might decline by one or two percentage points. But in 2008, major global economies experienced a drastic, multi-year unseen plunge in GDP. Unemployment rates skyrocketed, with many people losing their jobs instantly and struggling to find new ones for a long time.
- Breadth: It wasn't confined to a single country. The crisis originated in the U.S. housing market and spread like a virus rapidly across the globe. Europe, Asia... hardly any country was spared, fully demonstrating the negative effects of global economic integration.
2. Exceptional Duration
An ordinary recession might last a few months to over a year. However, the impact of the 'Great Recession' persisted for several years. Even after economic data indicated the recession had ended, the 'chill' felt by ordinary people – such as difficulty finding jobs, stagnant wages, and reluctance to spend – lingered for a very long time. The economic recovery process was extremely slow and painful.
3. Nearly Triggered a Complete Financial System Collapse
This is the most crucial point. It wasn't just a simple economic downturn but a systemic financial crisis.
You can imagine banks and financial institutions as the 'circulatory system' of the economy. In 2008, due to complex financial derivatives (such as subprime mortgage-backed securities), this system became riddled with 'bad debts' and 'toxic assets'. Banks lost trust in each other, unsure if another institution would collapse the next second, leading to a halt in interbank lending.
This was like the circulatory system suddenly becoming blocked, putting the entire economy at risk of 'shock'. The direct bankruptcy of a century-old investment bank like Lehman Brothers triggered widespread panic. Had governments not intervened urgently, using taxpayer money to bail out banks, the entire global financial system might have truly collapsed. This kind of systemic risk is simply not seen in ordinary recessions.
4. A Homage (or Warning) to History
The name also pays homage to the most famous historical event, 'The Great Depression'. The economic crisis that began in 1929 was the most severe in modern history, known as 'The Great Depression'.
The 2008 crisis was the most serious global economic disaster since then. Therefore, using the term 'Great Recession' not only acknowledges its severity but also serves as a reminder to everyone how close we came to a catastrophe of the last century's magnitude.
In summary:
It's called the 'Great Recession' because it was far more severe than a common cold, a serious illness that nearly sent the global economy to the 'ICU'. Its destructive power, duration, global reach, and fundamental impact on the financial system were all far beyond what a typical economic recession entails.