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The recession of the early nineteen-nineties was an economic recession that hit much of the world in 1990-91.

On Black Monday of October 1987 a stock collapse of unprecedented size lopped 22.6 percent off the Dow Jones Industrial Average. The collapse, larger than that of 1929, was handled well by the economy, and the stock market began to quickly recover. However, in North America, the lumbering savings and loans industry was beginning to collapse, leading to a savings and loan crisis which put the financial wellbeing of millions of Americans in jeopardy.

The panic that followed led to a sharp recession that hit hardest those countries most closely linked to the United States, including Canadamarker, Australia, and the United Kingdommarker. The economies of much of Europe and Japanmarker were hurt, but not as badly. The US economy continued to grow as a whole, although certain sectors of the market such as energy and real estate slumped.

The first burst of the recession was short-lived, as fervent pre-election activity by the governments of the United States and Canada created what many economists at the time saw as an economic miracle: a growing consumer confidence and increased consumer spending almost single-handedly lifted the North American economy out of recession.

It soon turned out that the quick recovery was illusory, and by 1990, economic malaise had returned with the beginning of the Gulf War and the resulting 1990 spike in the price of oil, which increased inflation but to less of a degree as the oil crisis ten years earlier. Nevertheless, for the next several years high unemployment, massive government budgetary deficits, and slow Gross Domestic Product (GDP) growth affected the United States until late 1992 and Canada until 1995.

The rest of the world was less affected by the downturn; Germanymarker and Japanmarker both grew rapidly. Some pundits guessed that this would be a permanent state of affairs and that both the German and Japanese economies would grow to be larger than the American one.

Like all recessions, the one of the late 1980s and early 1990s had a profound impact on society. Rates of alcoholism and drug abuse increased, as did rates of depression.

While the Progressive Conservative government of Brian Mulroney in Canadamarker and the successful election campaign of George H. W. Bush in the United States may have been aided by the brief recovery of 1988, neither leader could hold on to power through the last part of the recession, both being swept out by opponents running on pledges to restore the economy to health. Bush's 1992 re-election bid was particularly hampered by his 1990 decision to renege on his "Read my lips: no new taxes" pledge during his first campaign in 1988.

In Australia, Paul Keating (then Treasurer of Australia, and future Prime Minister), referred to it as "the recession that Australia had to have." This quote became a cornerstone of the opposition Liberal Party's campaign during the 1993 election, designed to underscore alleged mismanagement of the national economy by the incumbent Labor Party. Unlike the opposition parties in North America, however, the Liberal Party failed to enter government.

In neighboring New Zealandmarker, the recession came after the re-election of the reformist Lange Labour government. The impact of economic reforms (known as Rogernomics) in the recession led to deep policy divisions between the Prime Minister, David Lange, and the Minister of Finance, Roger Douglas. In response to the recession, Douglas wanted to increase the pace of reform, whereas Lange sought to prevent further reform. Douglas resigned from Cabinet in 1988, but was re-appointed to Cabinet in 1989, prompting Lange to resign. Labour lost the 1990 general elections by a landslide to the National Party, who continued with Douglas' reforms.

Finlandmarker underwent severe economic depression in 1990-93. Badly managed financial deregulation of the 1980s, in particular removal of bank borrowing controls and liberation of foreign borrowing, combined with strong currency and fixed exchange rate policy led to a foreign debt financed boom. Bank borrowing increased at its peak over 100% a year and asset prices skyrocketed. The collapse of the Soviet Unionmarker in 1991 led to a 70% drop in trade with Russia and eventually Finland was forced to devaluate, which increased the private sector's foreign currency denominated debt burden. At the same time authorities tightened bank supervision and prudential regulation, lending dropped by 25% and asset prices halved. Combined with raising savings rate and worldwide economic troubles, this led to a sharp drop of aggregate demand and a wave of bankruptcies. Credit losses mounted and a banking crisis inevitability followed. A number of companies went down by 15%, real GDP contracted about 14% and unemployment rose from 3% to nearly 20% in four years. Although economic growth has been fast since the depression, mass unemployment never really went away and fourteen years after the depression the unemployment rate still stood at 7%.

See also



References

  1. Paul Keating - Chronology at australianpolitics.com
  2. http://www.cepr.org/PRESS/EP29%20finland.htm
  3. http://www.stat.fi/tup/suoluk/suoluk_tyoelama_en.html



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