I need a one page paper with no introduction or conclusion based off of what I already have:
Deflation occurs when consumer and asset prices decrease over time and purchasing power increases. While these seem like positive changes on the surface times of deflation are closely related to recessions. The best example of this in recent years is the 2008 recession leading to almost a full year of deflation in 2009. The table below shows each month of the year and the average.
During this time, known as the Great Recession which technically lasted from December 2007 to June 2009, there was a decrease in commodity prices. The commodity hit hardest by this period was Crude Oil. In the Yahoo chart in the citations we can see that Oil decreased by 76.6% between 7/6/2008 and 12/14/2008. Luckily the deflation during this time period was less severe than economists predicted, modern economists believe that this was because the cost of loans had increased drastically and businesses were pressured to keep prices high.
Over the past couple years we have seen similar effects to what we saw during the Great Recession. In the worst months of the effects of COVID slowing the economy, the rate of inflation never turned into deflation, but did get very close.
Similarly the price of Crude Oil decreased by a striking amount of 73.1% over the period of 12/29/2019 and 4/19/2020. On a side note, I remember tracking this change myself and seeing the price of Crude Oil dropping below zero, yet I do not see that now, hope i’m not crazy. When comparing these two time periods we can see that the effects on inflation and a major commodity were worse during the Great Recession.
I believe that a reason for this is that recessions caused by financial ‘mismanagement’ tend to be more impactful on the economy than recessions caused by ‘natural disasters’, including epidemics. In terms of initial impacts the recession in 2020 is the worst since the great depression, but the recovery from these effects seemed to be handled better. The great recession lasted 18 months and the great depression lasted almost four years, while the 2020 recession likely technically lasted less than a year. The stock market rebounded to peak in record time in 2020 only taking about 126 trading days, while the great depression took about 25 years to reach their pre-crisis peak.
What was the difference between the two most recent financial recessions and how did the financial crisis caused by the coronavirus recover drastically faster in comparison to the Great Recession? As soon as the coronavirus became the pandemic that it is known as today, we saw the United States economy plummet the fastest it has in the country’s history. We saw unemployment rise to 14.7% through the span of February to April in 2020, its highest level since 1940. Along with the rise of unemployment, we saw Q2 GDP decline 32.9%. The Congressional Budget Office forecasted that the unemployment rate would be in the range of double digits through six quarters, ending 2021 at 10%. Everything seemed as if the United States was falling into something worse than the Great Depression.
Despite new cases of the coronavirus around the nation and the high percentage of unemployment, the economic recovery from this pandemic is up there as the fastest in the history of America. The recent recovery of the economy is recorded to be 10 times faster than the one after the Great Recession. Since hitting its peak in April, the unemployment rate has fallen every month and as of February 2021 it is at 6.7%. During the pandemic the unemployment rate was above 7% for six months, while it was above 7% for fifty-nine consecutive months from December of 2008 to October of 2013. A couple of Goldman Sachs researches said the pandemic recession is seen as more V-shaped than previous postwar cycles, which seem to be driven by financial shocks to asset markets and income. In their November 2020 report they continue to say how during financial crashes similar to the one in 2008, lending dries up and businesses struggle to borrow which results in slow growth. We have seen faster growth during the financial crisis of the coronavirus pandemic because this has not been a problem as of recent.
Another big reason the economy revived so quickly during the spring and summer is because so many of the job cuts that occurred during the lockdown were temporary. Employers such as barber shops, dental offices and restaurants were able to bring workers back once the lockdown restrictions were lifted in their respective states. Easy job recoveries like the ones listed previously washed away once the initial lockdown restrictions were lifted, resulting in slower economic growth. In June 2020, 4.8 million workers were hired (or rehired), in comparison to 245,000 jobs in November, which was only enough to push the unemployment rate down 2 percentage points.
As of late 2020, economists could see the trend that shows the country is continuing to grow, but at a slower rate. Growth is slowing because as the pandemic is still ongoing, it keeps business like airlines and hotels limited which prevents a full rebound. As we continue to get more people vaccinated, it will be easier to fully open travel businesses back to normal, resulting in a healthier economy.
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