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-2,973 people were killed, including 343 firefighters.

-The physical damage was between $82.8 billion and $94.8 billion

-Stock exchange closed.

-Deepened the 2001 recession caused by the bursting of the dot-com investing bubble.

-Led to the implementation of the War on Terror. The costs of the wars in Afghanistan and Iraq have continued to increase. The latest studies reveal that costs have exceeded $6.4 trillion.27

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1929:
-Herbert Hoover became president. His laissez-faire economic policies did little to stop the Depression.

-650 bank failures

-The value of the dollar rose, prices fell, reduced revenue for businesses. It also meant that debt cost more for lenders to pay back. Created a ripple effect of personal and business bankruptcies

1930:
-Hoover signed the Smoot-Hawley Tariff Act, which raised taxes on 900 imports.7 It originally was supposed to help farmers but ended up imposing tariffs on hundreds of other products.

-Hoover returned the top income tax rate to 25% because of the  budget deficits. The economy shrank 8.5%. The unemployment rate rose to 8.7%. Deflation set in as prices fell 6.4%.

1931:
-Food riots broke out in Minneapolis.

-People began to suffer the worst effects of the Great Depression.

1932:
-Congress created the Reconstruction Finance Corporation to lend $2 billion to financial institutions to prevent further failures.

-Economy bottomed after shrinking 27%

-Bank failures slowed, construction contracts increased 30%, and department store sales rose 8%

1933:
-The Civil Works Administration created 4 million construction jobs.17

-Farmers slaughtered 6 million pigs to reduce supply and boost prices.

-The public criticized the waste of food. FDR created the Federal Surplus Relief Corporation to use excess farm output to feed the poor.

1934:
-The Gold Reserve Act prohibited private ownership of gold and doubled its price. The act changed gold price history

-The economy grew 10.8% in response to the New Deal Programs. Unemployment fell to 21.7%. Prices rose 1.5%. The debt rose to $27 billion.

1935:
-The National Labor Relations Act/Wagner Act protected workers' rights and created the National Labor Relations Board.

-The Resettlement Administration trained and provided loans to farmers.

-The Social Security Act provided income to the elderly, the blind, the disabled, and children in low-income families. It was paid for with payroll taxes and the Social Security Trust Fund.

1936:/

1937:
-The New Agricultural Adjustment Act remedied the 1933 AAA. The Fair Labor Standards Act established the U.S. minimum wage, overtime pay, and youth employment standards

1938:
-The economy started to grow again. The Great Depression was over.

-The drought returned

-World War two started

1939:/

1940:
-FDR increased the defense budget and raised the top income tax rate to 81%.

1941:
-The drought ended. The economy grew 17.7%, unemployment plummeted to 9.9%, and prices rose 9.9%. The debt grew to $58 billion.

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-The stock market crash of 1929.
-Banking panics and monetary contraction.
-The gold standard.
-Decreased international lending and tariffs.

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https://www.econlib.org/library/Enc/GreatDepression.html

The Great Depression also changed economic thinking. Because many economists and others blamed the depression on inadequate demand, the Keynesian view that government could and should stabilize demand to prevent future depressions became the dominant view in the economics profession for at least the next forty years. Although an increasing number of economists have come to doubt this view, the general public still accepts it.

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A worldwide depression struck countries with market economies at the end of the 1920s. Although the Great Depression was relatively mild in some countries, it was severe in others, particularly in the United States, where, at its nadir in 1933, 25 percent of all workers and 37 percent of all nonfarm…

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https://www.investopedia.com/financial-edge/0911/the-impact-of-september-11-on-business.aspx

-The market fell 684 points
-Gold prices leaped from $215.50 an ounce to $287, reflecting the uncertainty and flight to safety of nervous investors. Gas and oil prices also shot upward as fears emerged that oil imports from the Middle East would be curtailed.
-The federal government offered a $15 billion aid package, but several airlines nevertheless filed for bankruptcy
-Almost 18,000 small businesses were shut down or destroyed.
-The Consumer Confidence Index and the University of Michigan's Index of Consumer Sentiment fell to levels not seen since 1996 and 1993 respectively.

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The U.S. economy made great strides after September 11, but some experts believe that the American economy shows its aftereffects to this day.

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https://www.history.com/topics/21st-century/9-11-attacks

From 2001 to 2004, over $7 billion dollars in compensation was given to families of the 9/11 victims and the 2,680 people injured in the attacks. Funding was renewed on January 2, 2011, when President Barack Obama signed The James Zadroga 9/11 Health and Compensation Act into law.

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World Trade Center

On September 11, 2001, at 8:45 a.m. on a clear Tuesday morning, an American Airlines Boeing 767 loaded with 20,000 gallons of jet fuel crashed into the north tower of the World Trade Center in New York City.

The impact left a gaping, burning hole near the 80th floor of the 110-story skyscraper, instantly killing hundreds of people and trapping hundreds more in higher floors.

As the evacuation of the tower and its twin got underway, television cameras broadcasted live images of what initially appeared to be a freak accident. Then, 18 minutes after the first plane hit, a second Boeing 767-United Airlines Flight 175-appeared out of the sky, turned sharply toward the World Trade Center and sliced into the south tower near the 60th floor.

The collision caused a massive explosion that showered burning debris over surrounding buildings and onto the streets below. It immediately became clear that America was under attack.

Osama bin Laden

The hijackers were Islamic terrorists from Saudi Arabia and several other Arab nations. Reportedly financed by the al Qaeda terrorist organization of Saudi fugitive Osama bin Laden, they were allegedly acting in retaliation for America's support of Israel, its involvement in the Persian Gulf War and its continued military presence in the Middle East.

Some of the terrorists had lived in the United States for more than a year and had taken flying lessons at American commercial flight schools. Others had slipped into the country in the months before September 11 and acted as the "muscle" in the operation.

Where Did the 9/11 Planes Take Off From?

The 19 terrorists smuggled box-cutters and knives through security at three East Coast airports-Logan International Airport in Boston, Dulles International Airport in Washington, D.C. and Newark International Airport in New Jersey-and boarded four early-morning flights bound for California, chosen because the planes were loaded with fuel for the long transcontinental journey. Soon after takeoff, the terrorists commandeered the four planes and took the controls, transforming ordinary passenger jets into guided missiles.

Pentagon Attack

As millions watched the events unfolding in New York, American Airlines Flight 77 circled over downtown Washington, D.C., before crashing into the west side of the Pentagon military headquarters at 9:45 a.m.

Jet fuel from the Boeing 757 caused a devastating inferno that led to the structural collapse of a portion of the giant concrete building, which is the headquarters of the U.S. Department of Defense.

All told, 125 military personnel and civilians were killed in the Pentagon, along with all 64 people aboard the airliner.

Twin Towers Collapse

Less than 15 minutes after the terrorists struck the nerve center of the U.S. military, the horror in New York took a catastrophic turn when the south tower of the World Trade Center collapsed in a massive cloud of dust and smoke.

The structural steel of the skyscraper, built to withstand winds in excess of 200 miles per hour and a large conventional fire, could not withstand the tremendous heat generated by the burning jet fuel.

At 10:30 a.m., the north building of the twin towers collapsed. Only 18 people in the World Trade Center towers at the time of the collapse survived. Most were with a group of FDNY firefighters in the North Tower's Stairwell B, which remained intact. One woman survived after the stairs she was rushing down disintegrated around her. Almost 10,000 others were treated for injuries, many severe.

Flight 93

Meanwhile, a fourth California-bound plane- United Flight 93-was hijacked about 40 minutes after leaving Newark Liberty International Airport in New Jersey. Because the plane had been delayed in taking off, passengers on board learned of events in New York and Washington via cell phone and Airfone calls to the ground.

Knowing that the aircraft was not returning to an airport as the hijackers claimed, a group of passengers and flight attendants planned an insurrection.

One of the passengers, Thomas Burnett, Jr., told his wife over the phone that "I know we're all going to die. There's three of us who are going to do something about it. I love you, honey." Another passenger-Todd Beamer-was heard saying "Are you guys ready? Let's roll" over an open line.

Sandy Bradshaw, a flight attendant, called her husband and explained that she had slipped into a galley and was filling pitchers with boiling water. Her last words to him were "Everyone's running to first class. I've got to go. Bye."

The passengers fought the four hijackers and are suspected to have attacked the cockpit with a fire extinguisher. The plane then flipped over and sped toward the ground at upwards of 500 miles per hour, crashing in a rural field near Shanksville in western Pennsylvania at 10:10 a.m.

All 44 people aboard were killed. Its intended target is not known, but theories include the White House, the U.S. Capitol, the Camp David presidential retreat in Maryland or one of several nuclear power plants along the eastern seaboard.

How Many People Died in the 9/11 Attacks?

A total of 2,996 people were killed in the 9/11 attacks, including the 19 terrorist hijackers aboard the four airplanes. Citizens of 78 countries died in New York, Washington, D.C., and Pennsylvania.

At the World Trade Center, 2,763 died after the two planes slammed into the twin towers. That figure includes 343 firefighters and paramedics, 23 New York City police officers and 37 Port Authority police officers who were struggling to complete an evacuation of the buildings and save the office workers trapped on higher floors.

At the Pentagon, 189 people were killed, including 64 on American Airlines Flight 77, the airliner that struck the building. On Flight 93, 44 people died when the plane crash-landed in Pennsylvania.

America Responds to the Attacks

At 7 p.m., President George W. Bush, who was in Florida at the time of the attacks and had spent the day being shuttled around the country because of security concerns, returned to the White House.

At 9 p.m., he delivered a televised address from the Oval Office, declaring, "Terrorist attacks can shake the foundations of our biggest buildings, but they cannot touch the foundation of America. These acts shatter steel, but they cannot dent the steel of American resolve."

In a reference to the eventual U.S. military response he declared, "We will make no distinction between the terrorists who committed these acts and those who harbor them."

Operation Enduring Freedom, the American-led international effort to oust the Taliban regime in Afghanistan and destroy Osama bin Laden's terrorist network based there, began on October 7. Within two months, U.S. forces had effectively removed the Taliban from operational power, but the war continued, as U.S. and coalition forces attempted to defeat a Taliban insurgency campaign based in neighboring Pakistan.

Osama bin Laden, the mastermind behind the September 11th attacks, remained at large until May 2, 2011, when he was finally tracked down and killed by U.S. forces at a hideout in Abbottabad, Pakistan. In June 2011, then-President Barack Obama announced the beginning of large-scale troop withdrawals from Afghanistan; it took until August 2021 for all U.S. forces to withdraw.

Department of Homeland Security Is Created

In the wake of security fears raised by 9/11 and the mailing of letters containing anthrax that killed two and infected 17, The Homeland Security Act of 2002 created the Department of Homeland Security. It was signed into law by President George W. Bush on November 25, 2002. Today, the Department of Homeland Security is a cabinet responsible for preventing terror attacks, border security, immigrations and customs and disaster relief and prevention.

The act was followed two days later by the formation of the National Commission on Terrorist Attacks Upon the United States. The bipartisan " 9/11 Commission," as it came to be known, was charged with investigating the events that lead up to September 11th. The 9/11 Commission Report was released on July 22, 2004. It named Khalid Sheikh Mohammed, the accused mastermind behind 9/11, "the principal architect of the 9/11 attacks."

Mohammed led propaganda operations for al Qaeda from 1999-2001. He was captured on March 1, 2003 by the Central Intelligence Agency and Pakistan's Inter-Services Intelligence and interrogated before being imprisoned in Guantanamo Bay detention camp with four other accused terrorists charged with 9/11-related war crimes. The use of torture, including waterboarding, during Khalid Sheikh Mohammed's interrogation has received international attention. In August 2019, a U.S. military court judge in Guantánamo Bay, Cuba set a trial date for Mohammed and the other four men charged with plotting the 9/11 terrorist attacks to begin in 2021; it was later postponed because of the COVID-19 pandemic.

Economic Impact of 9/11

The 9/11 attacks had an immediate negative effect on the U.S. economy. Many Wall Street institutions, including the New York Stock Exchange, were evacuated during the attacks. On the first day of trading after the attacks, the market fell 7.1 percent, or 684 points. New York City's economy alone lost 143,000 jobs a month and $2.8 billion wages in the first three months. The heaviest losses were in finance and air transportation, which accounted for 60 percent of lost jobs. The estimated cost of the World Trade Center damage is $60 billion. The cost to clean the debris at Ground Zero was $750 million.

Victim Compensation Fund

Thousands of first responders and people working and living in lower Manhattan near Ground Zero were exposed to toxic fumes and particles emanating from the towers as they burned and fell. By 2018, 10,000 people were diagnosed with 9/11-related cancer.

From 2001 to 2004, over $7 billion dollars in compensation was given to families of the 9/11 victims and the 2,680 people injured in the attacks. Funding was renewed on January 2, 2011, when President Barack Obama signed The James Zadroga 9/11 Health and Compensation Act into law. Named for James Zadroga, a New York City Police officer who died of respiratory disease he contracted after rescuing people from the rubble at Ground Zero, the law continued health monitoring and compensation for 9/11 first responders and survivors.

In 2015, funding for the treatment of 9/11-related illness was renewed for five more years at a total of $7.4 billion. The Victim Compensation Fund was set to stop accepting claims in December 2020.

On July 29, 2019, then-President Trump signed a law authorizing support for the September 11 Victim Compensation Fund through 2092. Previously, administrators had cut benefits by up to 70 percent as the $7.4 billion fund depleted. Vocal lobbyists for the fund included Jon Stewart, 9/11 first responder John Feal and retired New York Police Department detective and 9/11 responder Luis Alvarez, who died of cancer 18 days after testifying before Congress.

Anniversary and Memorial

On December 18, 2001, Congress approved naming September 11 "Patriot Day" to commemorate the anniversary of the 9/11 attacks. In 2009, Congress named September 11 a National Day of Service and Remembrance.

The first memorials to September 11 came in the immediate wake of the attacks, with candlelight vigils and flower tributes at U.S. embassies around the world. In Great Britain, Queen Elizabeth sang the American national anthem during the changing of the guard at Buckingham Palace. Rio de Janeiro put up billboards showing the city's Christ the Redeemer statue embracing the New York City skyline.

For the first anniversary of the attacks in New York City in 2002, two bright columns of light were shot up into the sky from where the Twin Towers once stood. The "Tribute in Light" then became an annual installation run by the Municipal Art Society of New York. On clear nights, the beams are visible from over 60 miles away.

A World Trade Center Site Memorial Competition was held to select an appropriate permanent memorial to the victims of 9/11. The winning design by Michael Arad, "Reflecting Absence," now sits outside the museum in an eight-acre park. It consists of two reflecting pools with waterfalls rushing down where the Twin Towers once rose into the sky.

The names of all 2,983 victims are engraved on the 152 bronze panels surrounding the pools, arranged by where individuals were on the day of the attacks, so coworkers and people on the same flight are memorialized together. The site was opened to the public on September 11, 2011, to commemorate the 10-year anniversary of 9/11. The National September 11 Memorial & Museum followed, opening on the original World Trade Center site in May 2014. The Freedom Tower, also on the original World Trade Center site, opened in November 2014.

Sources

"Study Confirms 9/11 Impact on New York City Economy." The New York Times
"September 11: nearly 10,000 people affected by 'cesspool of cancer.'" The Guardian.
"Congress passes 9/11 Victim Compensation Fund extension championed by Jon Stewart." CNN.com
The Encyclopedia of 9/11. New York Magazine.
FAQ About 9/11. 9/11 Memorial.
September 11th Terror Attacks Fast Facts. CNN.
9/11 Death Statistics. StatisticBrain.com.

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September 11 Attacks: Facts, Background & Impact

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On September 11, 2001, 19 militants associated with the Islamic extremist group al Qaeda hijacked four airplanes and carried out suicide attacks against targets in the United States. Two of the planes were flown into the twin towers of the World Trade Center in New York City, a third plane hit the Pentagon just outside Washington, D.C., and the fourth plane crashed in a field in Pennsylvania.

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https://sgp.fas.org/crs/row/R45079.pdf

-An ambitious effort to stimulate economic growth in a despondent and nearly bankrupt post-World War II Europe.

-It was enacted in 1948 and provided more than $15 billion to help finance rebuilding efforts on the continent.

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https://www.britannica.com/event/Marshall-Plan

-The western European countries involved experienced a rise in their gross national products of 15 to 25 percent during this period.

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Marshall Plan, (April 1948-December 1951), U.S.-sponsored program designed to rehabilitate the economies of 17 western and southern European countries in order to create stable conditions in which democratic institutions could survive.

The United States feared that the poverty, unemployment, and dislocation of the post- World War II period were reinforcing the appeal of communist parties to voters in western Europe. On June 5, 1947, in an address at Harvard University, Secretary of State George C. Marshall advanced the idea of a European self-help program to be financed by the United States, saying

The truth of the matter is that Europe's requirements for the next three or four years of foreign food and other essential products-principally from America-are so much greater than her present ability to pay that she must have substantial additional help or face economic, social, and political deterioration of a very grave character.

On the basis of a unified plan for western European economic reconstruction presented by a committee representing 16 countries, the U.S. Congress authorized the establishment of the European Recovery Program, which was signed into law by U.S. Pres. Harry S. Truman on April 3, 1948. Aid was originally offered to almost all the European countries, including those under military occupation by the Soviet Union. The Soviets early on withdrew from participation in the plan, however, and were soon followed by the other eastern European nations under their influence. This left the following countries to participate in the plan: Austria, Belgium, Denmark, France, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Sweden, Switzerland, Turkey, the United Kingdom, and western Germany.

Under Paul G. Hoffman, the Economic Cooperation Administration (ECA), a specially created bureau, distributed over the next four years some $13 billion worth of economic aid, helping to restore industrial and agricultural production, establish financial stability, and expand trade. Direct grants accounted for the vast majority of the aid, with the remainder in the form of loans. To coordinate the European participation, 16 countries, led by the United Kingdom and France, established the Committee of European Economic Cooperation to suggest a four-year recovery program. This organization was later replaced by the permanent Organisation for European Economic Co-operation (OEEC), to which West Germany was ultimately admitted.

The Marshall Plan was very successful. The western European countries involved experienced a rise in their gross national products of 15 to 25 percent during this period. The plan contributed greatly to the rapid renewal of the western European chemical, engineering, and steel industries. Truman extended the Marshall Plan to less-developed countries throughout the world under the Point Four Program, initiated in 1949.

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Marshall Plan | Summary & Significance | Britannica

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Marshall Plan, formally European Recovery Program (1948-51), U.S.-sponsored program advocated by Secretary of State George C. Marshall to rehabilitate the economies of 17 western and southern European countries in order to create stable conditions in which democratic institutions could survive.

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https://www.dinersclub.com/about-us/history

-2020：

DINERS CLUB INTERNATIONAL CELEBRATES ITS 70TH ANNIVERSARY

-When New York businessman Frank McNamara started Diners Club in 1950, he had big dreams for his new company and the credit card it would issue.

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1950
Diners Club becomes the world's first multipurpose charge card
For businessman Frank McNamara, forgetting his wallet while dining out at a New York City restaurant was an embarrassment he resolved never to face again. Luckily, his wife bailed him out and paid the tab.

A year later in February 1950, he returned to Major's Cabin Grill with his partner Ralph Schneider. When the bill arrived, McNamara paid with a small cardboard card, known today as a Diners Club Card. The event was hailed as the First Supper, paving the way for the world's first multipurpose charge card.

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Diners Club becomes the world's first multipurpose charge card For businessman Frank McNamara, forgetting his wallet while dining out at a New York City restaurant was an embarrassment he resolved never to face again. Luckily, his wife bailed him out and paid the tab.

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https://www.dinersclubus.com/home/about/dinersclub/story

In the 1950s, Diners Club led the way in credit card innovation by introducing a travel insurance policy. The cardboard card turned plastic in the 1960s, and bewitched Audrey Hepburn in the classic film "Breakfast at Tiffany's".

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The Story Behind The Card

It all began with a forgotten wallet...

In 1949, businessman Frank McNamara forgot his wallet while dining out at a New York City restaurant. It was an embarrassment he resolved never to face again. Luckily, his wife rescued him and paid the tab.

February 1950. McNamara returned to Major's Cabin Grill with his partner Ralph Schneider. When the bill arrived, McNamara paid with a small cardboard card, known today as a Diners Club® Card. This event was hailed as the "First Supper," paving the way for the world's first multipurpose charge card.

In its first year of business, Diners Club® grew to 10,000 members from New York's business elite, with 28 restaurants and two hotels prepared to accept monthly billing in respect of this select clientele.

In the 1950s, Diners Club led the way in credit card innovation by introducing a travel insurance policy. The cardboard card turned plastic in the 1960s, and bewitched Audrey Hepburn in the classic film "Breakfast at Tiffany's".

In the 1970s, Diners Club launched its first range of corporate cards and, one decade later, lived up to its reputation as the pioneer of the industry with the introduction of Club Rewards®.

On December 31, 2009, BMO® Financial Group acquired the Diners Club North American franchise. The agreement gives BMO Financial Group exclusive rights to issue Diners Club Cards to corporate and personal clients in the U.S. and Canada.

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Diners Club - Company history of Diners Club

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The Story Behind The Card In 1949, businessman Frank McNamara forgot his wallet while dining out at a New York City restaurant. It was an embarrassment he resolved never to face again. Luckily, his wife rescued him and paid the tab. February 1950. McNamara returned to Major's Cabin Grill with his partner Ralph Schneider.

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https://www.federalreservehistory.org/essays/gold-convertibility-ends

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President Richard Nixon's actions in 1971 to end dollar convertibility to gold and implement wage/price controls were intended to address the international dilemma of a looming gold run and the domestic problem of inflation. The new economic policy marked the beginning of the end of the Bretton Woods international monetary system and temporarily halted inflation.

The international monetary system after World War II was dubbed the Bretton Woods system after the meeting of forty-four countries in Bretton Woods, New Hampshire, in 1944. The countries agreed to keep their currencies fixed (but adjustable in exceptional situations) to the dollar, and the dollar was fixed to gold. Since 1958, when the Bretton Woods system became operational, countries settled their international balances in dollars, and US dollars were convertible to gold at a fixed exchange rate of $35 an ounce. The United States had the responsibility of keeping the dollar price of gold fixed and had to adjust the supply of dollars to maintain confidence in future gold convertibility.

Initially, the Bretton Woods system operated as planned. Japan and Europe were still rebuilding their postwar economies and demand for US goods and services-and dollars-was high. Since the United States held about three-quarters of the world's official gold reserves, the system seemed secure.

In the 1960s, European and Japanese exports became more competitive with US exports. The US share of world output decreased and so did the need for dollars, making converting those dollars to gold more desirable. The deteriorating US balance of payments, combined with military spending and foreign aid, resulted in a large supply of dollars around the world. Meanwhile, the gold supply had increased only marginally. Eventually, there were more foreign-held dollars than the United States had gold. The country was vulnerable to a run on gold and there was a loss of confidence in the US government's ability to meet its obligations, thereby threatening both the dollar's position as reserve currency and the overall Bretton Woods system.

Many efforts were made to adjust the US balance of payments and to uphold the Bretton Woods system, both domestically and internationally. These were meant to be "quick fixes" until the balance of payments could readjust, but they proved to be postponing the inevitable.

In March 1961, the US Treasury's Exchange Stabilization Fund (ESF), with the Federal Reserve Bank of New York acting as its agent, began to intervene in the foreign-exchange market for the first time since World War II. The ESF buys and sells foreign exchange currency to stabilize conditions in the exchange rate market. While the interventions were successful for a time, the Treasury's lack of resources limited its ability to mount broad dollar defense.

From 1962 until the closing of the US gold window in August 1971, the Federal Reserve relied on "currency swaps" as its key mechanism for temporarily defending the US gold stock. The Federal Reserve structured the reciprocal currency arrangements, or swap lines, by providing foreign central banks cover for unwanted dollar reserves, limiting the conversion of dollars to gold.

In March 1962, the Federal Reserve established its first swap line with the Bank of France and by the end of that year lines had been set up with nine central banks (Austria, Belgium, England, France, Germany, Italy, the Netherlands, Switzerland, and Canada). Altogether, the lines provided up to $900 million equivalent in foreign exchange. What started as a small, short-term credit facility grew to be a large, intermediate-term facility until the US gold window closed in August 1971. The growth and need for the swap lines signaled that they were not just a temporary fix, but a sign of a fundamental problem in the monetary system.

International efforts were also made to stem a run on gold. A run in the London gold market sent the price to $40 an ounce on October 20, 1960, exacerbating the threat to the system. In response, the London Gold Pool was formed on November 1, 1961. The pool consisted of a group of eight central banks (Great Britain, West Germany, Switzerland, the Netherlands, Belgium, Italy, France, and the United States). In order to keep the price of gold at $35 an ounce, the group agreed to pool gold reserves to intervene in the London gold market in order to maintain the Bretton Woods system. The pool was successful for six years until another gold crisis ensued. The British pound sterling devalued and another run on gold occurred, and France withdrew from the pool. The pool collapsed in March 1968.

At that time the seven remaining members of the London Gold Pool (Great Britain, West Germany, Switzerland, the Netherlands, Belgium, Italy, and the United States) agreed to formulate a two-tiered system. The central banks agreed to use their gold only in settling international debts and to not sell monetary gold on the private market. The two-tier system was in place until the US gold window closed in 1971.

These efforts of the global financial community proved to be temporary fixes to a broader structural problem with the Bretton Woods system. The structural problem, which has been called the "Triffin dilemma," occurs when a country issues a global reserve currency (in this case, the United States) because of its global importance as a medium of exchange. The stability of that currency, however, comes into question when the country is persistently running current account deficits to fulfill that supply. As the current account deficits accumulate, the reserve currency becomes less desirable and its position as a reserve currency is threatened.

While the United States was in the midst of the Triffin dilemma, it was also facing a growing problem of inflation at home. The period that became known as the Great Inflation had started and policymakers had put anti-inflation policies in place, but they were short lived and ineffective. At first, both the Nixon administration and the Federal Reserve believed in a gradual approach, slowly lowering inflation with a minimum increase in unemployment. They would tolerate an unemployment rate of up to 4.5 percent, but by the end of the 1969-70 recession the unemployment rate had climbed to 6 percent, and inflation, as measured by the consumer price index, was 5.4 percent.

When Arthur Burns became chairman of the Board of Governors in 1970, he was faced with both slow growth and inflation, or stagflation. Burns believed that tightening monetary policy and the increase in unemployment that accompanied it would be ineffective against the inflation then occurring, because it stemmed from forces beyond the control of the Fed, such as labor unions, food and energy shortages, and OPEC's control of oil prices. Moreover, many economists in the administration and at the Fed, including Burns, shared the view that inflation could not be reduced with an acceptable unemployment rate. According to economist Allan Meltzer, Andrew Brimmer, a Fed Board member from 1966 to 1974, noted at that time that employment was the principal goal and fighting inflation was the second priority. The Federal Open Market Committee implemented an expansionary monetary policy.

Economic Policy Meeting (Photo: Courtesy of the Richard Nixon Library)

With inflation on the rise and a gold run looming, Nixon's administration coordinated a plan for bold action. From August 13 to 15, 1971, Nixon and fifteen advisers, including Federal Reserve Chairman Arthur Burns, Treasury Secretary John Connally, and Undersecretary for International Monetary Affairs Paul Volcker (later Federal Reserve Chairman) met at the presidential retreat at Camp David and created a new economic plan. On the evening of August 15, 1971, Nixon addressed the nation on a new economic policy that not only was intended to correct the balance of payments but also stave off inflation and lower the unemployment rate.

The first order was for the gold window to be closed. Foreign governments could no longer exchange their dollars for gold; in effect, the international monetary system turned into a fiat one. A few months later the Smithsonian agreement attempted to maintain pegged exchange rates, but the Bretton Woods system ended soon thereafter. The second order was for a 90-day freeze on wages and prices to check inflation. This marked the first time the government enacted wage and price controls outside of wartime. It was an attempt to bring down inflation without increasing the unemployment rate or slowing the economy. In addition, an import surcharge was set at 10 percent to ensure that American products would not be at a disadvantage because of exchange rates.

Shortly after the plan was implemented, the growth of employment and production in the United States increased. Inflation was practically halted during the 90-day wage-price freeze but would soon reappear as the monetary momentum in support of inflation had already begun. Nixon's new economic policy represented a coordinated attack on the simultaneous problems of unemployment, inflation, and disequilibrium in the balance of payments. The plan was one of the many prescriptions written to cure inflation, which would eventually continue to rise.

Bibliography

Bordo, Michael. "The Bretton Woods International Monetary System: A Historical Overview." In A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, edited by Michael Bordo and Barry Eichengreen, 3-108. Chicago: University of Chicago Press, 1993.

Bordo, Michael D. and Barry Eichengreen, "Bretton Woods and the Great Inflation," NBER Working Paper 14532, National Bureau of Economic Research, Cambridge, MA, December 2008.

Bordo, Michael, Owen Humpage, and Anna J. Schwartz, " Bretton Woods, Swap Lines, and the Federal Reserve's Return to Intervention," Working Paper 12-32, Federal Reserve Bank of Cleveland, Cleveland, OH, November 2012.

Burns, Arthur, "The Anguish of Central Banking," The 1979 Per Jacobsson Lecture, Belgrade, Yugoslavia, September 30, 1979.

Eichengreen, Barry. Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. New York: Oxford University Press, 2011.

Eichengreen, Barry, "Global Imbalances and the Lessons of Bretton Woods," NBER Working Paper 10497, National Bureau of Economic Research, Cambridge, MA, May 2004.

Eichengreen, Barry. "Epilogue: Three Perspectives on the Bretton Woods System." In A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, edited by Michael Bordo and Barry Eichengreen, 621-58, Chicago: University of Chicago Press, 1993.

Federal Reserve Bank of St. Louis. "Federal Reserve Bank of New York Annual Report." 1971.

Federal Reserve Bank of St. Louis. "International Monetary Policies." September 1947.

Federal Reserve Bank of St. Louis. "Stemming Inflation: The Office of Emergency Preparedness and the 90-day Freeze." 1972.

Federal Reserve Bank of New York. "Exchange Stabilization Fund." May 2007.

Lowenstein, Roger, "The Nixon Shock," Bloomberg Businessweek, August 4, 2011.

Meltzer, Allan H., "Origins of the Great Inflation," Federal Reserve Bank of St. Louis Review 87, no. 2, part 2 (March/April 2005): 145-75.

Meltzer, Allan H., "U.S. Policy in the Bretton Woods Era," Federal Reserve Bank of St. Louis Review 73, no. 3 (May/June 1991): 53-83.

U.S. Department of State Office of the Historian. " The Bretton Woods Conference 1944." Accessed on October 22, 2013.

Romer, Christina, "Commentary on Meltzer's Origins of the Great Inflation," Federal Reserve Bank of St. Louis Review 87, no. 2, part 2, (March/April 2005): 177-85.

Yergin, Daniel, and Joseph Stanislaw. The Commanding Heights. New York: Simon & Schuster, 1998.

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Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls

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President Richard Nixon's actions in 1971 to end dollar convertibility to gold and implement wage/price controls were intended to address the international dilemma of a looming gold run and the domestic problem of inflation. The new economic policy marked the beginning of the end of the Bretton Woods international monetary system and temporarily halted inflation.

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https://www.aier.org/article/what-the-gold-standard-is-and-why-government-killed-it/

-The gold standard does not fix the price of gold.

-The gold standard is not a regime of international fixed exchange rates.

-The gold standard is an international monetary regime. This international characteristic was broken during WWI, where (1) international shipments of gold were suspended or reduced and (2) major countries suspended their banknotes’ convertibility in order to “print” money to pay for the expenses of war.

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The gold standard is both a strongly advocated and vehemently opposed monetary regime. Both positions, however, usually rely on misconceptions on what the gold standard actually is and why it failed. Below, I will discuss (1) what the gold standard is, (2) what is not, and (3) why it failed.
What the gold standard is
Under a gold standard, gold is money . This means that gold is (1) the most common means of exchange, (2) it is a good store of value, and (3) it is a unit of account. While we can picture gold coins being used for transactions in small amounts, larger amounts are done with a substitute of gold, usually a banknote with a promise that the bearer can exchange it for gold. These banknotes are issued by central banks, and are convertible to gold at par.
One feature of the gold standard is that the change in gold reserves signals to the central bank if it is issuing too many (or too few) convertible banknotes. If the central bank over-issues banknotes, meaning that banknotes increase more than the value individuals want to hold, then consumption at the aggregate or national level increases. Since individuals now see more banknotes than they want to hold in their pockets, they will spend the extra cash. This means that, unless production has increased, imports will also increase.

But in the exporting country the domestic banknotes do not circulate. Therefore the importer has to pay for the imports with gold. If imports increase more than exports, then the central bank sees their reserves decreasing. In modern days, where central banks issue fiat money (that is, banknotes not backed by gold or any other commodity), central banks need to find a substitute to figure out if they are issuing too many banknotes. That substitute is usually inflation; if inflation rises, central bankers reason that money supply might be too loose.
A common concern with the gold standard is that is prone to unexpected and random discoveries of gold that could produce inflation and monetary imbalances. Surely, no regime would be perfect. It would be unwise to criticize the real-world shortcoming of the gold standard in comparison to, for instance, an idealized but unreal central banking regime that issues fiat money. The useful, and fair, comparison would be to compare the real gold standard with a real modern central bank rather than an ideal central bank.

It is true that under gold standards of the past there were periods of inflation. But rather than assuming that these were problems with the gold standard itself, we can look closer at the events taking place at the time. When we do so, we find that either the many cases of inflation were not due to random gold discoveries or that the inflation rates were not actually very high.

Take, the case of the United States. The inflation "peaks" of less than 2% between 1812 and 1816 and again between 1861 and 1866 correspond with the War of 1812 and the Civil War respectively. In these cases, inflation is not explained by a shortcoming in the gold standard, but by an increase in government spending due to armed conflicts.
Another example is that of the Price Revolution that took place in Western Europe between the second half of the 15th century and the first half of the 17th century. During this time period of approximately 150 years the price level increased six times. That translates to an average yearly rate of inflation of just 1 to 1.5 percent.
I t seems that modern central banks, rather than the old gold standard, are the ones that have a poorer track record with respect to keeping a lid on inflation. Since 1971 (when the last remnant of the gold standard was abandoned), the inflation rate in the United States has had a yearly growth rate of 4%. This means that between 1971 and 2017, the price level has increased six times .

What the gold standard is not

There are two important clarifications to make in terms of that what the gold standard is not. The first one has to do with gold standard pegging the price of gold, and the second has to do with the gold standard as an international regime of fixed exchange rates.
The gold standard does not fix the price of gold.
As mentioned above, under a gold standard, gold is what functions as money, the convertible banknotes issued by central banks are money substitutes. Recall that ultimately what functions as the unit of account is gold. This means that the gold standard is not a policy that fixes the price of gold as if central bank banknotes were money and gold just a commodity of reference. This is not just semantics.

When you deposit your dollars (or Euros, British Pounds, etc.) into a bank account you receive a checkbook that you can use to write checks that are "convertible" to dollars. This check is similar to the convertible banknotes that central banks issues. And just as if you write too many checks your bank account balance goes down, if a central bank issues too many convertible banknotes their reserves go down as well. And just as we do not say that we fix the price of the dollar in terms of our checks, we cannot argue that under gold standard we are fixing the price of gold in terms of central bank convertible banknotes.

Today gold is no longer widely perceived or accepted as money. The observed volatility of its price against a currency such as the US dollar is seen as a concern if gold were to be the reference commodity under a gold standard. If, hypothetically speaking, a central bank were to go back to the gold standard, this means that gold would function as money, not that the price of gold would be fixed and the central bank would have to expand or contract the money supply to stabilize its price (i.e. buy and sell gold at the given fixed price.)
The gold standard is not a regime of international fixed exchange rates.
If gold is the commodity that functions as money, then this also means that the gold standard is an international monetary regime. Just as two individuals may write checks from different banks convertible into the same currency, under a gold standard different central banks issue convertible banknotes convertible into the same commodity: gold.

If this is the case, then the gold standard cannot fix exchange rates because there are no exchange rates to fix in the first place. An exchange rate is the price between two different currencies. In a gold standard we have one currency for many countries, similar to today how a group of European countries share the Euro as their currency (the Eurozone).

If we had two metals, gold and silver, then will see an exchange rate between gold and silver. But this would be a bi-metallic system, not just a gold standard.

To argue that there is an exchange rate between two convertible banknotes issued by different central banks is like arguing that there is an exchange rate between two checks denominated in dollars but issued at different banks. If one check is for $50 and the second one for $100, the relation is that we need two $50 checks to equal the value of on $100 check. This is a parity relationship, not an exchange rate. Once again, to argue that the gold standard is an international regime of fixed exchange rates is to confuse what is and what is not money under such a system. These checks, or convertible banknotes, have different denominations or measurements of the same good (pounds, ounces, etc.) the same way that miles and kilometers are different measures of the same thing. There is no price between miles and kilometers, there is a parity conversion.

Why the gold standard failed

A popular argument is that the gold standard failed due to flaws in its design. According to critics, the gold standard is in fact responsible for the Great Depression. According to this argument, when aggregate demand fell central banks had their hands tied by the gold standard and could not react by increasing the money supply. This made the Great Depression a worse crisis than it would otherwise have been. The institutional reforms that followed moved the US away from the gold standard into a more flexible and free system based on fiat money.
But something important happened before the Great Depression; World War I. Remember that the gold standard is an international monetary regime. This international characteristic was broken during WWI, where (1) international shipments of gold were suspended or reduced and (2) major countries suspended their banknotes' convertibility in order to "print" money to pay for the expenses of war.
WWI meant a de facto end to the gold standard even if de jure no country "gave up" the gold standard. After WWI important decisions had to be made. One of those was the United Kingdom going back to the prewar convertibility of its own banknotes without removing from circulation the excess of banknotes.
This caused the British Pound to devalue against the US dollar. And the United States decided to also increase its money supply in order to contain the British Pound. This eventually fueled the financial bubble that burst in 1929, signifying the beginning of the Great Depression.

Once we take this sequence of events into account we can see that the gold standard broke down because of WWI and it never returned to its normal functionality. The gold standard cannot be responsible for the Great Depression for the simple fact that it stopped working more than a decade before.

Now, there is a more subtle argument made by some economists that the gold standard was responsible for the Great Depression, not because of the gold standard regime but because of the gold standard mentality that constrained the central bankers of the time.

However the behavior of UK and US policymakers of the time went against the gold standard mentality. Especially in the US, where the idea of increasing the money supply without a commensurate increase in gold reserves, all in an effort to help the British Pound, was not part of the gold standard mentality.
The gold standard did not fail due to its own internal problems, but because of government driven, calamitous events such as WWI and the post-WWI policy makers' looser monetary policy, made possible due to the inconvertibility of the banknotes.

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What the Gold Standard Is and Why Government Killed It

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This piece originally appeared in Learn Liberty The gold standard is both a strongly advocated and vehemently opposed monetary regime. Both positions, however, usually rely on misconceptions on what the gold standard actually is and why it failed. Below, I will discuss (1) what the gold standard...

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https://www.history.com/this-day-in-history/world-wide-web-launches-in-public-domain

On April 30, 1993, four years after publishing a proposal for “an idea of linked information systems,” computer scientist Tim Berners-Lee released the source code for the world's first web browser and editor.

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On April 30, 1993, four years after publishing a proposal for "an idea of linked information systems," computer scientist Tim Berners-Lee released the source code for the world's first web browser and editor. Originally called Mesh, the browser that he dubbed WorldWideWeb became the first royalty-free, easy-to-use means of browsing the emerging information network that developed into the internet as we know it today.

Berners-Lee was a fellow at CERN, the research organization headquartered in Switzerland. Other research institutions like the Massachusetts Institute of Technology and Stanford University had developed complex systems for internally sharing information, and Berners-Lee sought a means of connecting CERN's system to others. He outlined a plan for such a network in 1989 and developed it over the following years. The computer he used, a NeXT desktop, became the world's first internet server. Berners-Lee wrote and published the first web page, a simplistic outline of the WorldWideWeb project, in 1991.

CERN began sharing access with other institutions, and soon opened it up to the general public. In releasing the source code for the project to the public domain two years later, Berners-Lee essentially opened up access to the project to anyone in the world, making it free and (relatively) easy to explore the nascent internet.

Simple Web browsers like Mosaic appeared a short time later, and before long the Web had become by far the most popular system of its kind. Within a matter of years, Berners-Lee's invention had revolutionized information-sharing and, in doing so, had dramatically altered the way that human beings communicated. The creation and globalization of the web is widely considered one of the most transformational events in human history. 4.39 billion people, including you, are now estimated to use the internet, accounting for over half the global population. The average American now spends 24 hours a week online. The internet's rise has been the greatest expansion in information access in human history, has led to the exponential growth in the total amount of data in the world, and has facilitated a spread of knowledge, ideas and social movements that was unthinkable as recently as the 1990s.

Fact Check

We strive for accuracy and fairness. But if you see something that doesn't look right, click here to contact us! HISTORY reviews and updates its content regularly to ensure it is complete and accurate.

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World Wide Web (WWW) launches in the public domain

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On April 30, 1993, four years after publishing a proposal for "an idea of linked information systems," computer scientist Tim Berners-Lee released the source code for the world's first web browser and editor. Originally called Mesh, the browser that he dubbed WorldWideWeb became the first royalty-free, easy-to-use means of browsing the emerging information network that [...]

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https://medium.com/technicity/a-timeline-of-the-worlds-economic-history-e93cfa78c2e8

Started off as a research project under the Advanced Research Projects Agency (ARPA). ARPAnet — the world’s first multiple-site computer network created in 1969 eventually transitioned into a public network in 1993 used for widespread communication and eventually giving rise to the Internet economy.

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Visualizing the Global Economic growth of the past 2000 years

The weak data from the Eurozone (EU) yesterday and a slowing manufacturing/services activity in the U.S is pointing to onset of a recession in the global economy. What complicates things if the growing trade hostilities among different countries of the World. Of primary concern is the...

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A Timeline of the World's Economic History

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The weak data from the Eurozone (EU) yesterday and a slowing manufacturing/services activity in the U.S is pointing to onset of a recession in the global economy. What complicates things if the growing trade hostilities among different countries of the World. Of primary concern is the...

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https://www.cnn.com/2017/08/31/politics/hurricane-harvey-recovery-money/index.html

Federal hurricane assistance has spiked since Hurricane Katrina, with the federal government shelling out more than $200 billion – half of which went to the recovery from Katrina and a quarter of which went to Hurricane Sandy relief efforts.

In the half dozen storms that caused at least $1 billion in damages immediately before Hurricane Katrina, the federal government contributed funds to cover only 17% of estimated damages in federal aid, on average. In storms including Katrina and afterward, federal spending averaged 62% of estimated damages, peaking at 72% of Katrina’s damages and 80% of Sandy’s damages.

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What past federal hurricane aid tells us about money for Harvey recovery | CNN Politics

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The recovery from Hurricane Harvey has soared to the top of the Capitol Hill to-do list.

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https://guides.lib.lsu.edu/Hurricanes/KatrinaEconomy

In New Orleans alone, an estimated 95,000 individuals lost their jobs in the 10 months following the hurricane, accounting for $2.9 billion in lost wages. The storm’s economic effects were also felt by the country at large. Katrina impacted up to 19% of the total U.S. oil production, as 24% of the country's natural gas supply is housed in or around areas impacted by the storm. 20 offshore rigs sustained significant damage by either sinking or running adrift. As a result, Louisiana refineries began to halt production, and gas prices across the countries rapidly increased in the weeks following Katrina. This was the first time in the country’s history that the national average gas price exceeded $3.

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Research Guides: Louisiana Hurricanes: Impact on Economy

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Research Guides: Louisiana Hurricanes: Impact on Economy

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-The housing market expanded dangerously in the following years, with these derivatives (called "mortgage-backed securities") being created from mortgages that had been given to people who couldn't afford them

-At the same time, the Federal Reserve raised interest rates.23

-Many homeowners had adjustable-rate mortgages that followed the fed funds rate—when rates rose, so did monthly premiums.

-Many homeowners lost equity in their homes, or couldn't sell them or meet the increased monthly payments. Mortgages defaulted, and the securities created from them dropped significantly in price—influencing the financial crisis.

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https://www.thebalance.com/what-caused-the-subprime-mortgage-crisis-3305696

-Hedge fund plays a key role

-Derivatives Drove the Subprime Crisis

-Subprime and Interest-Only Mortgages Don't Mix

-the Community Reinvestment Act created the crisis. That's because it pushed banks to lend more to poor neighborhoods. That was its mandate when it was created in 1977.

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Hedge funds, banks, and insurance companies caused the subprime mortgage crisis. Hedge funds and banks created mortgage-backed securities. The insurance companies covered them with credit default swaps. Demand for mortgages led to an asset bubble in housing.

When the Federal Reserve raised the federal funds rate, it sent adjustable mortgage interest rates skyrocketing. As a result, home prices plummeted, and borrowers defaulted. Derivatives spread the risk into every corner of the globe. That caused the 2007 banking crisis, the 2008 financial crisis, and the Great Recession. It created the worst recession since the Great Depression.

Hedge funds are always under tremendous pressure to outperform the market. They created demand for mortgage-backed securities by pairing them with guarantees called credit default swaps.﻿﻿ What could go wrong? Nothing, until the Fed started raising interest rates. Those with adjustable-rate mortgages couldn't make these higher payments. Demand fell, and so did housing prices. When they couldn't sell their homes, either, they defaulted. No one could price, or sell, the now-worthless securities. And American International Group (AIG) almost went bankrupt trying to cover the insurance.﻿﻿

The subprime mortgage crisis was also caused by deregulation. In 1999, the banks were allowed to act like hedge funds.﻿﻿ They also invested depositors' funds in outside hedge funds. That's what caused the Savings and Loan Crisis in 1989.﻿﻿ Many lenders spent millions of dollars to lobby state legislatures to relax laws. Those laws would have protected borrowers from taking on mortgages they really couldn't afford.

Banks and hedge funds made so much money selling mortgage-backed securities, they soon created a huge demand for the underlying mortgages. That's what caused mortgage lenders to continually lower rates and standards for new borrowers.

Mortgage-backed securities allow lenders to bundle loans into a package and resell them. In the days of conventional loans, this allowed banks to have more funds to lend. With the advent of interest-only loans, this also transferred the risk of the lender defaulting when interest rates reset. As long as the housing market continued to rise, the risk was small.

The advent of interest-only loans combined with mortgage-backed securities created another problem. They added so much liquidity in the market that it created a housing boom.

Subprime borrowers are those who have poor credit histories and are therefore more likely to default. Lenders charge higher interest rates to provide more return for the greater risk.﻿﻿ So, that makes it too expensive for many subprime borrowers to make monthly payments.

The advent of interest-only loans helped to lower monthly payments so subprime borrowers could afford them.﻿﻿ But, it increased the risk to lenders because the initial rates usually reset after one, three, or five years.﻿﻿ But the rising housing market comforted lenders, who assumed the borrower could resell the house at the higher price rather than default.

Fannie Mae and Freddie Mac were government-sponsored enterprises that participated in the mortgage crisis. They may have even made it worse. But they didn't cause it. Like many other banks, they got caught up in the practices that created it.﻿﻿

Another myth is that the Community Reinvestment Act created the crisis. That's because it pushed banks to lend more to poor neighborhoods. That was its mandate when it was created in 1977.﻿﻿

In 1989, Financial Institutions Reform, Recovery, and Enforcement Act ( FIRREA) strengthened the CRA by publicizing banks' lending records. It prohibited them from expanding if they didn't comply with CRA standards. In 1995, President Clinton called on regulators to strengthen the CRA even more.﻿﻿

But, the law did not require banks to make subprime loans. It didn't ask them to lower their lending standards. They did that to create additional profitable derivatives.

The risk was not just confined to mortgages. All kinds of debt were repackaged and resold as collateralized debt obligations.﻿﻿ As housing prices declined, many homeowners who had been using their homes as ATMs found they could no longer support their lifestyle. Defaults on all kinds of debt started to creep up slowly. Holders of CDOs included not only lenders and hedge funds. They also included corporations, pension funds, and mutual funds. That extended the risk to individual investors.

The real problem with CDOs was that buyers did not know how to price them. One reason was they were so complicated and so new. Another was that the stock market was booming. Everyone was under so much pressure to make money that they often bought these products based on nothing more than word of mouth.

Every boom has its bust. In 2006, housing prices started to decline.﻿﻿ Subprime borrowers couldn't sell their houses at a higher price than they paid for them. Banks weren'​t willing to refinance when the home's value was less than the mortgage. Instead, banks foreclosed.

Many of the purchasers of CDOs were banks. As defaults started to mount, banks were unable to sell these CDOs, and so had less money to lend. Those who had funds did not want to lend to banks that might default. By the end of 2007, the Fed had to step in as a lender of last resort.﻿﻿ The crisis had come full circle. Instead of lending too freely, banks lent too little, causing the housing market to decline further.

How a Little Accounting Rule Made Things Much Worse

Some experts also blame mark to market accounting for the banks' problems. The rule forces banks to value their assets at current market conditions.﻿﻿ First, banks raised the value of their mortgage-backed securities as housing costs skyrocketed. They then scrambled to increase the number of loans they made to maintain the balance between assets and liabilities. In their desperation to sell more mortgages, they eased up on credit requirements. They loaded up on subprime mortgages.

When asset prices fell, the banks had to write down the value of their subprime securities. Now banks needed to lend less to make sure their liabilities weren't greater than their assets. Mark to market inflated the housing bubble and deflated home values during the decline.

In 2009, the U.S. Financial Accounting Standards Board eased the mark to market accounting rule.﻿﻿ This suspension allowed banks to keep the value of the MBS on their books. In reality, the values had plummeted.

If the banks were forced to mark their value down, it would have triggered the default clauses of their derivatives contracts. The contracts required coverage from credit default swaps insurance when the MBS value reached a certain level. It would have wiped out all the largest banking institutions in the world.

The Bottom Line

The ultimate cause of the subprime mortgage crisis boils down to human greed and failed wisdom. The prime players were banks, hedge funds, investment houses, ratings agencies, homeowners, investors, and insurance companies.

Banks lent, even to those who couldn't afford loans. People borrowed to buy houses even if they couldn't really afford them. Investors created a demand for low premium MBS, which in turn increased demand for subprime mortgages. These were bundled in derivatives and sold as insured investments among financial traders and institutions.

So when the housing market became saturated and interest rates started to rise, people defaulted on their loans which were bundled in derivatives. This was how the housing market crisis brought down the financial sector and caused the 2008 Great Recession.

1. U.S. Government Publishing Office. " The Financial Crisis Inquiry Report," Page 8. Accessed June 16, 2020.

2. American Economic Association. " How Debt Markets Have Malfunctioned in the Crisis," Page 13. Accessed June 16, 2020.

3. U.S. Government Publishing Office. " The Financial Crisis Inquiry Report," Pages 445-446. Accessed June 16, 2020.

4. Allen Independent School District. " A Shift to the Right Under Reagan," Page 7. Accessed June 16, 2020.

5. Consumer Financial Protection Bureau. " What Is a Subprime Mortgage?" Accessed June 16, 2020.

6. U.S. Government Publishing Office. " The Financial Crisis Inquiry Report," Pages 451-452. Accessed June 16, 2020.

7. Federal Deposit Insurance Corporation. " Interest-Only Mortgage Payments and Payment-Option ARMs." Accessed June 16, 2020.

8. U.S. Government Publishing Office. " The Financial Crisis Inquiry Report," Pages XXVI-XXVII. Accessed June 16, 2020.

9. Federal Financial Institutions Examination Council. " Community Reinvestment Act - Background & Purpose." Accessed June 16, 2020.

10. Board of Governors of the Federal Reserve System. " The Community Reinvestment Act."Accessed June 16, 2020.

11. Robinhood. " What Is a Collateralized Debt Obligation (CDO)?" Accessed June 16, 2020.

12. Federal Reserve Bank of St. Louis. " The Boom and Bust of U.S. Housing Prices From Various Geographic Perspectives," Page 342. Accessed June 16, 2020.

13. U.S. Government Publishing Office. " The Financial Crisis Inquiry Report," Pages 274-276. Accessed June 16, 2020.

14. American Economic Association. " Did Fair-Value Accounting Contribute to the Financial Crisis?," Page 93. Accessed June 16, 2020.

15. Journal of Accountancy. " FASB Approves New Mark-to-Market Guidance." Accessed June 16, 2020.

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The Causes of the Subprime Mortgage Crisis

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Hedge funds, banks, and insurance companies caused the subprime mortgage crisis. Hedge funds and banks created mortgage-backed securities. The insurance companies covered them with credit default swaps. Demand for mortgages led to an asset bubble in housing. When the Federal Reserve raised the federal funds rate, it sent adjustable mortgage interest rates skyrocketing.

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https://www.investopedia.com/investing/great-recessions-impact-housing-market/

The subprime mortgage collapse caused many people to lose their homes, and the fallout created economic stagnation. Americans faced financial disaster as the value of their homes dropped well below the amount they had borrowed, and subprime interest rates spiked.

A combination of rising home prices, loose lending practices, and an increase in subprime mortgages pushed up real estate prices to unsustainable levels.

Foreclosures and defaults crashed the housing market, wiping out financial securities backing up subprime mortgages.

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Over the last decade, the global economic downturn that began in December 2007 has influenced the current real estate environment more than any other. This period of economic turmoil was is referred to as the Great Recession when many, if not most people, faced unprecedented challenges.

Understanding the dynamics and implications of this period that began with a housing bubble is critical for homebuyers in today's housing market.

Understanding the Great Recession

The U.S. economy had been experiencing a boom for many years. But the economic gain was wiped out in a matter of months. Beginning in 2007, millions of people lost their jobs and homes when the housing market started to plummet (i.e., the "bursting" of the housing bubble). From the mid-1990s to the mid-2000s the average price of housing rose rapidly and peaked in 2007 when the average price of a house in the United States reached $314,000, according to U.S.census data.

In 2000, the average price of a house was $207,000. Artificially high home prices, loose lending practices, and the increase in subprime mortgages were economically unsustainable, yet the housing bubble continued to grow unabated. The bubble finally broke in 2007.

Key Takeaways

As the crisis grew, numerous foreclosures and defaults crashed the housing market vastly depreciating the value of deliberately obscure financial securities directly tied to subprime mortgages (e.g., mortgage-backed securities). The fallout created a ripple effect throughout the entire global financial system. Banks in the United States and around the world began to fail. Ultimately, the U.S. federal government intervened to mitigate the damage.

The Housing Market During the Great Recession

During the period leading up to the recession, both foreign and domestic investors continued to pour money into the real estate industry. Homebuyers were issued credit without adequate risk management. The combination of rising home prices and easy credit led to an increase in the number of subprime mortgages, an underlying cause of the Great Recession.

Subprime mortgages are financial instruments with widely varying terms that lenders offer to risky borrowers. A risky borrower might have a less than stellar credit history, questionable income stability, and a high debt-to-income ratio. Moreover, subprime mortgages were popular among homebuyers who were purchasing second homes. In fact, lenders specifically targeted these home buyers for subprime mortgages.

Furthermore, subprime mortgages often have adjustable interest rates. Subprime lenders offered consumers mortgages that carried low-interest rates for a short period but, once the initial specified period is over, the interest rates can jump considerably. The average subprime mortgage interest rate from 1998 to 2001 was much higher than conventional mortgage rates, by as much as 3.7 percentage points.

The Aftermath for the Housing Market

The subprime mortgage collapse caused many people to lose their homes, and the fallout created economic stagnation. Americans faced financial disaster as the value of their homes dropped well below the amount they had borrowed, and subprime interest rates spiked.

Monthly mortgage payments almost doubled in some parts of the country. In most cases, borrowers were actually better defaulting on their mortgage loans rather than paying more for a home that had dropped precipitously in value.

In turn, homebuilding saw a significant decline restricting the supply of new homes for a steadily growing population. The lack of supply and the increased demand created a seller's market in the real estate industry. More people were now chasing fewer homes, which increased home prices.

Fast Fact

The good news for today's home buyers is that the foundational causes of the Great Recession have been addressed by the real estate industry, the financial industry, and U.S. policymakers. To stimulate economic growth, the Federal Reserve, which is responsible for setting the conditions that influence employment and economic growth, slashed the federal funds rate to near-zero.

The federal funds rate is the interest rate at which banks borrow from each other. The decision to reduce interest costs allowed people to have more access to capital to reinvest in the economy.

Over the last decade, the net effect of near-zero interest rates has stabilized the U.S. economy by encouraging lending among financial institutions that are systemically critical to the housing market. Today, supply and demand for housing have stabilized. As a result, mortgage rates are in balance with the economy.

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The Great Recession's Impact on the Housing Market

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Over the last decade, the global economic downturn that began in December 2007 has influenced the current real estate environment more than any other. This period of economic turmoil was is referred to as the Great Recession when many, if not most people, faced unprecedented challenges.

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https://www.britannica.com/topic/oil-crisis

Oil crisis, a sudden rise in the price of oil that is often accompanied by decreased supply. ... The first occurred in 1973, when Arab members of OPEC (Organization of the Petroleum Exporting Countries) decided to quadruple the price of oil to almost $12 a barrel (see Arab oil embargo).

an oil crisis is defined here as an increase in oil prices large enough to cause a worldwide recession

With the OPEC oil embargo of 1973, oil prices jumped 350%, and the higher costs rippled through the economy.

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Oil crisis, a sudden rise in the price of oil that is often accompanied by decreased supply. Since oil provides the main source of energy for advanced industrial economies, an oil crisis can endanger economic and political stability throughout the global economy.

In the post- World War II period there have been two major oil crises. The first occurred in 1973, when Arab members of OPEC (Organization of the Petroleum Exporting Countries) decided to quadruple the price of oil to almost $12 a barrel ( see Arab oil embargo). Oil exports to the United States, Japan, and western Europe, which together consumed more than half the world's energy, were also prohibited. OPEC's decision was made in retaliation for Western support of Israel against Egypt and Syria during the Yom Kippur War (1973) and in response to a persistent decline in the value of the U.S. dollar (the denominated currency for oil sales), which had eroded the export earnings of OPEC states. With the global capitalist economy already experiencing difficulties, these actions precipitated a steep recession accompanied by rising inflation. This forced capitalist countries to embark on a process of economic restructuring in order to reduce their dependency on oil and prompted fears that the United States might take military action in order to secure free access to its energy supplies. Although the oil embargo was lifted in 1974, oil prices remained high, and the capitalist world economy continued to stagnate throughout the 1970s.

Another major oil crisis occurred in 1979, a result of the Iranian Revolution (1978-79). High levels of social unrest severely damaged the Iranian oil industry, leading to a large loss of output and a corresponding rise in prices. The situation worsened following the outbreak of the Iran-Iraq War (1980-88), which further added to the level of instability throughout the region. In 1981 the price of oil was stabilized at $32 per barrel. By 1983, however, major capitalist economies had adopted more-efficient methods of production, and the problems of the 1970s had been transformed into a relative oversupply of oil rather than a shortage.

Steven Kettell

Learn More in these related Britannica articles:

Arab oil embargo, temporary cessation of oil shipments from the Middle East to the United States, the Netherlands, Portugal, Rhodesia, and South Africa, imposed by oil-producing Arab countries in October 1973 in retaliation for support of Israel during the Yom Kippur War; the embargo on the United States was lifted...

Oil, any greasy substance that is liquid at room temperature and insoluble in water. It may be fixed, or nonvolatile, oil; essential oil; or mineral oil ( see petroleum). A brief treatment of fixed oils follows. For full treatment of edible oils, see fat and oil processing. Fixed oils and fats have the...

World War II, conflict that involved virtually every part of the world during the years 1939-45. The principal belligerents were the Axis powers-Germany, Italy, and Japan-and the Allies-France, Great Britain, the United States, the Soviet Union, and, to a lesser extent, China. The war was...

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oil crisis | Definition, History, & Facts

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Oil crisis, a sudden rise in the price of oil that is often accompanied by decreased supply. Since oil provides the main source of energy for advanced industrial economies, an oil crisis can endanger economic and political stability throughout the global economy.

# data[].attributes.body
https://www.marketplace.org/2016/05/31/how-oil-shortage-1970s-shaped-todays-economic-policy/

The crisis began when the Arab producers of the Organization of Petroleum Exporting Countries (OPEC) put in place an embargo on oil exports to the United States in October 1973 and threatened to cut back overall production 25 percent

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Oil producers in the United States pumped an average 8.7 million barrels per day last week, according to the department of energy. Although that is impressive, this was not always the case.

In October of 1973, the Arab members of OPEC placed an embargo on the U.S. in response to its support of Israel and the Yom Kippur War. The result was an oil shortage across the country, and a crash course for Americans on the limits of their government's power.
Hear Jacobs' conversation in the audio player above and read an excerpt below.

Forty years ago, Americans were suffering from what contemporaries called "the energy crisis," a crisis that in many ways defined the decade of the 1970s. During the twin oil shocks of 1973 and 1979, oil supplies dropped and prices soared, and the average citizen understood the energy crisis to mean a panic at the pump- the fear that we would not have enough oil to fi ll up our gas tanks, heat our homes, or run our factories. And whatever fuel we did have would go up and up in price. Ever since, gas lines, cardigan sweaters, dark Christmas trees, and even wood stoves have become part of the collective memory of that era. At the time, Americans worried that life as they had come to know it- big cars, big suburban homes, and boundless consumption- was over. John Updike's title character Rabbit Angstrom summed it up best when, surveying his car sales lot, he thought, "The great American ride is ending."

Part of what made this a "crisis" was the sense that it happened all at once. The crisis began when the Arab producers of the Organization of Petroleum Exporting Countries (OPEC) put in place an embargo on oil exports to the United States in October 1973 and threatened to cut back overall production 25 percent. Led by Saudi Arabia, these Arab states sought to retaliate for President Richard Nixon's support of Israel against an attack from Egypt and Syria in the Yom Kippur War. The oil sheikhs wanted to change American foreign policy, making it less friendly to Israel, and they also hoped they could wield their so- called oil weapon to raise the price of this precious commodity. With less oil on the market, prices would jump. Indeed, by December, the OPEC oil ministers had quadrupled the selling price of each barrel of their oil, telling buyers to take it or leave it.

As soon as they announced an embargo, one of President Nixon's top advisers dubbed it "an Energy Pearl Harbor."2 There were no bombs, no bloodshed, no loss of life. But the embargo stunned Americans, as if they had come under a surprise attack, if not an outright act of war, because of the serious implications for the economy and the country's security. By 1973, Americans relied on oil for almost half of all their energy needs, and each day imports made up an expanding portion of the country's supply. Americans were vulnerable to scarcity and shortages as well as to higher fuel prices, which rippled through the entire economy and plagued the pocketbooks of all consumers. Oil was both the lifeline of the economy and a vital resource for the country's national defense. American oil had played a decisive role in the Allies' World War II victory, and with the Cold War raging on, U.S. oil remained a top national security concern.

The news was also stunning because the public was generally not aware that the country imported any oil at all. The United States was still the greatest single producer of oil in the world, as it had been since 1901, when Spindletop, near Beaumont, Texas, became synonymous with a sometimes uncontrollable 150- foot- high gusher of black gold. But with the spread of cars, suburbs, and factories in post- World War II America, demand rose faster than supply. In 1970, U.S. oil fields reached their peak of production at 9.6 million barrels per day. Imports quickly filled the gap between what Americans produced and what they consumed, more than doubling in volume between 1970 and 1973, when the United States was importing 36 percent of its oil.

The embargo did not stop the oil tankers already en route from the Middle East from completing their journeys. But the Arab countries ordered the major oil companies operating in the Middle East, which included the American corporations of Exxon, Texaco, Standard Oil of California, Gulf, and Mobil, to halt any future shipments to the United States. These multinational corporations were powerful, but they were nothing without access to oil in the ground, which the OPEC members owned. No one knew for sure when the embargo would end; the White House was projecting a loss between 10 and 17 percent of the country's gasoline supply. It was hardly a total shut off , but the use of the oil weapon sounded a clarion call, ushering in a future world very different from the recent past. The gas lines that curled their way across the American landscape seemed to embody a mentality that was a far cry from the 1950's motto "Fill 'er up."

In the winter of 1973-74, during the darkest days of the embargo, that sense of optimism, of unlimited bounty, was gone, replaced by doom and despair. The New York Times ran an article, one of a countless daily barrage, "For Gasoline, Little Is Certain but High Prices." It featured an eighteen- year- old nursing student from Westchester County, New York, who was searching for fuel at the height of the shortage. After visiting her sick mother, she got in her first gas line at 7:00 a.m., needing to get enough fuel to get back to college. By the afternoon, she still had not had any luck. "They closed down four lines on me this morning," the young student complained. When she finally landed in her last line, where she would have to wait for another hour, she "craned her neck toward the service station and gazed disconsolately at the 50 cars ahead of her, all waiting for a turn at the gas pump."

Despair bled easily into anger, especially at the American oil companies. Feeling they had few choices but to comply with the Arab producers, these companies cut off shipments and cut back overall supply. But the public found it hard to believe that the oil sheikhs could tell these corporations- the biggest, most influential companies in the country ever since the days of John D. Rockefeller- what to do. Instead, the vast majority of Americans, something like three- quarters of the public, insisted that Big Oil, as the industry was disparagingly known, created an artificial shortage. Rumors spread that tankers were waiting off shore, hoping to jack up prices as pumps ran dry. This sense of crisis, whether people believed it was real or manufactured, quickly triggered a panic, with drivers topping off at every chance, waiting in line so long they ran out of gas. These panic purchases magnified the shortage, because drivers chose to put gas in their car tanks rather than leave it in storage in the ground. A New York Times columnist captured the crisis mentality, writing, " 'Chaos is come again,' to borrow a phrase from Othello, but our chaos arises from an 'energy crisis' about which no two people, even the best authorities, seem to agree, and this disagreement encompasses the legitimacy of the 'crisis,' its extent, and what to do, and how and when."

If Americans were mad at the oil companies, they were even madder at the nation's politicians who seemed unprepared and unable to resolve this crisis. "We appeal to you for relief from the disastrous fuel situation in Central New Jersey," a group of housewives wrote to the president. By now, Nixon was already suffering politically because of his troubles from the Watergate break-in and the White House cover-up. The panic at the pump threatened greater political trouble for the weakened president. A resident of Fair Lawn, New Jersey, complained, "What is worse than 'Watergate' and all the various charges against the President? Answer- the gas crisis in Bergen County."

Americans sent letters to the White House because they expected the president to do something. Th at mind-set reflected the persistence of a New Deal mentality, one born in the depths of the Great Depression, that not only saw markets as malleable and businessmen as manipulative but also regarded the president and his policy makers as both responsible and capable of providing relief. "Government has final responsibility for the well-being of its citizenship," said Franklin Roosevelt. In this view, dominant for much of the early postwar era, politics and the market did not exist in separate spheres but were one; wages, prices, profits, production- all resulted as much from negotiations in congressional hearing rooms and in the halls of Washington's regulatory agencies as from the wheels of commerce.

Politics and policy making were also central to recessions, unemployment, and inflation, according to this view. In 1952, in American Capitalism, the liberal economist John Kenneth Galbraith described what he saw as the secret to the country's success. The nation had a political economy that worked to generate robust levels of steady economic growth. He stressed the importance of countervailing powers- the trade unions and consumer groups, which bargained with the nation's businessmen- all under the watchful eye of Washington politicians who stood ready to provide a stabilizing force in the marketplace. Without this system, he wrote, "private decisions could and presumably would lead to the unhampered exploitation of the public."

The energy crisis ultimately helped shift American politics to the right in the 1970's and bring an end to Galbraith's conception of the American system. This seismic shift in national politics, however, was anything but inevitable. When the crisis began in 1973, the strong arm of the New Deal seemed intact for much of the country. That outlook- one that saw government as the solution to national crises- resulted in a dramatic expansion of government intervention, especially as liberals in Congress advanced policies to place price controls on oil and create the Department of Energy (DOE) as a massive new government agency. The problem of shortages caused by international events was new, but the political solutions- from price controls to rationing to antitrust initiatives to break up Big Oil- were old. Washington was stuck in the past.

# data[].attributes.attachment_link.title
How an oil shortage in the 1970s shaped today's economic policy - Marketplace

# data[].attributes.attachment_link.description
Oil producers in the United States pumped an average 8.7 million barrels per day last week, according to the department of energy. Although that is impressive, this was not always the case. In October of 1973, the Arab members of OPEC placed an embargo on the U.S.

# data[].attributes.body
https://www.marketplace.org/2016/05/31/how-oil-shortage-1970s-shaped-todays-economic-policy/

Private decisions could and presumably would lead to the unhampered exploitation of the public.”

# data[].attributes.attachment_link.readable_text
Oil producers in the United States pumped an average 8.7 million barrels per day last week, according to the department of energy. Although that is impressive, this was not always the case.

In October of 1973, the Arab members of OPEC placed an embargo on the U.S. in response to its support of Israel and the Yom Kippur War. The result was an oil shortage across the country, and a crash course for Americans on the limits of their government's power.
Hear Jacobs' conversation in the audio player above and read an excerpt below.

Forty years ago, Americans were suffering from what contemporaries called "the energy crisis," a crisis that in many ways defined the decade of the 1970s. During the twin oil shocks of 1973 and 1979, oil supplies dropped and prices soared, and the average citizen understood the energy crisis to mean a panic at the pump- the fear that we would not have enough oil to fi ll up our gas tanks, heat our homes, or run our factories. And whatever fuel we did have would go up and up in price. Ever since, gas lines, cardigan sweaters, dark Christmas trees, and even wood stoves have become part of the collective memory of that era. At the time, Americans worried that life as they had come to know it- big cars, big suburban homes, and boundless consumption- was over. John Updike's title character Rabbit Angstrom summed it up best when, surveying his car sales lot, he thought, "The great American ride is ending."

Part of what made this a "crisis" was the sense that it happened all at once. The crisis began when the Arab producers of the Organization of Petroleum Exporting Countries (OPEC) put in place an embargo on oil exports to the United States in October 1973 and threatened to cut back overall production 25 percent. Led by Saudi Arabia, these Arab states sought to retaliate for President Richard Nixon's support of Israel against an attack from Egypt and Syria in the Yom Kippur War. The oil sheikhs wanted to change American foreign policy, making it less friendly to Israel, and they also hoped they could wield their so- called oil weapon to raise the price of this precious commodity. With less oil on the market, prices would jump. Indeed, by December, the OPEC oil ministers had quadrupled the selling price of each barrel of their oil, telling buyers to take it or leave it.

As soon as they announced an embargo, one of President Nixon's top advisers dubbed it "an Energy Pearl Harbor."2 There were no bombs, no bloodshed, no loss of life. But the embargo stunned Americans, as if they had come under a surprise attack, if not an outright act of war, because of the serious implications for the economy and the country's security. By 1973, Americans relied on oil for almost half of all their energy needs, and each day imports made up an expanding portion of the country's supply. Americans were vulnerable to scarcity and shortages as well as to higher fuel prices, which rippled through the entire economy and plagued the pocketbooks of all consumers. Oil was both the lifeline of the economy and a vital resource for the country's national defense. American oil had played a decisive role in the Allies' World War II victory, and with the Cold War raging on, U.S. oil remained a top national security concern.

The news was also stunning because the public was generally not aware that the country imported any oil at all. The United States was still the greatest single producer of oil in the world, as it had been since 1901, when Spindletop, near Beaumont, Texas, became synonymous with a sometimes uncontrollable 150- foot- high gusher of black gold. But with the spread of cars, suburbs, and factories in post- World War II America, demand rose faster than supply. In 1970, U.S. oil fields reached their peak of production at 9.6 million barrels per day. Imports quickly filled the gap between what Americans produced and what they consumed, more than doubling in volume between 1970 and 1973, when the United States was importing 36 percent of its oil.

The embargo did not stop the oil tankers already en route from the Middle East from completing their journeys. But the Arab countries ordered the major oil companies operating in the Middle East, which included the American corporations of Exxon, Texaco, Standard Oil of California, Gulf, and Mobil, to halt any future shipments to the United States. These multinational corporations were powerful, but they were nothing without access to oil in the ground, which the OPEC members owned. No one knew for sure when the embargo would end; the White House was projecting a loss between 10 and 17 percent of the country's gasoline supply. It was hardly a total shut off , but the use of the oil weapon sounded a clarion call, ushering in a future world very different from the recent past. The gas lines that curled their way across the American landscape seemed to embody a mentality that was a far cry from the 1950's motto "Fill 'er up."

In the winter of 1973-74, during the darkest days of the embargo, that sense of optimism, of unlimited bounty, was gone, replaced by doom and despair. The New York Times ran an article, one of a countless daily barrage, "For Gasoline, Little Is Certain but High Prices." It featured an eighteen- year- old nursing student from Westchester County, New York, who was searching for fuel at the height of the shortage. After visiting her sick mother, she got in her first gas line at 7:00 a.m., needing to get enough fuel to get back to college. By the afternoon, she still had not had any luck. "They closed down four lines on me this morning," the young student complained. When she finally landed in her last line, where she would have to wait for another hour, she "craned her neck toward the service station and gazed disconsolately at the 50 cars ahead of her, all waiting for a turn at the gas pump."

Despair bled easily into anger, especially at the American oil companies. Feeling they had few choices but to comply with the Arab producers, these companies cut off shipments and cut back overall supply. But the public found it hard to believe that the oil sheikhs could tell these corporations- the biggest, most influential companies in the country ever since the days of John D. Rockefeller- what to do. Instead, the vast majority of Americans, something like three- quarters of the public, insisted that Big Oil, as the industry was disparagingly known, created an artificial shortage. Rumors spread that tankers were waiting off shore, hoping to jack up prices as pumps ran dry. This sense of crisis, whether people believed it was real or manufactured, quickly triggered a panic, with drivers topping off at every chance, waiting in line so long they ran out of gas. These panic purchases magnified the shortage, because drivers chose to put gas in their car tanks rather than leave it in storage in the ground. A New York Times columnist captured the crisis mentality, writing, " 'Chaos is come again,' to borrow a phrase from Othello, but our chaos arises from an 'energy crisis' about which no two people, even the best authorities, seem to agree, and this disagreement encompasses the legitimacy of the 'crisis,' its extent, and what to do, and how and when."

If Americans were mad at the oil companies, they were even madder at the nation's politicians who seemed unprepared and unable to resolve this crisis. "We appeal to you for relief from the disastrous fuel situation in Central New Jersey," a group of housewives wrote to the president. By now, Nixon was already suffering politically because of his troubles from the Watergate break-in and the White House cover-up. The panic at the pump threatened greater political trouble for the weakened president. A resident of Fair Lawn, New Jersey, complained, "What is worse than 'Watergate' and all the various charges against the President? Answer- the gas crisis in Bergen County."

Americans sent letters to the White House because they expected the president to do something. Th at mind-set reflected the persistence of a New Deal mentality, one born in the depths of the Great Depression, that not only saw markets as malleable and businessmen as manipulative but also regarded the president and his policy makers as both responsible and capable of providing relief. "Government has final responsibility for the well-being of its citizenship," said Franklin Roosevelt. In this view, dominant for much of the early postwar era, politics and the market did not exist in separate spheres but were one; wages, prices, profits, production- all resulted as much from negotiations in congressional hearing rooms and in the halls of Washington's regulatory agencies as from the wheels of commerce.

Politics and policy making were also central to recessions, unemployment, and inflation, according to this view. In 1952, in American Capitalism, the liberal economist John Kenneth Galbraith described what he saw as the secret to the country's success. The nation had a political economy that worked to generate robust levels of steady economic growth. He stressed the importance of countervailing powers- the trade unions and consumer groups, which bargained with the nation's businessmen- all under the watchful eye of Washington politicians who stood ready to provide a stabilizing force in the marketplace. Without this system, he wrote, "private decisions could and presumably would lead to the unhampered exploitation of the public."

The energy crisis ultimately helped shift American politics to the right in the 1970's and bring an end to Galbraith's conception of the American system. This seismic shift in national politics, however, was anything but inevitable. When the crisis began in 1973, the strong arm of the New Deal seemed intact for much of the country. That outlook- one that saw government as the solution to national crises- resulted in a dramatic expansion of government intervention, especially as liberals in Congress advanced policies to place price controls on oil and create the Department of Energy (DOE) as a massive new government agency. The problem of shortages caused by international events was new, but the political solutions- from price controls to rationing to antitrust initiatives to break up Big Oil- were old. Washington was stuck in the past.

# data[].attributes.attachment_link.title
How an oil shortage in the 1970s shaped today's economic policy - Marketplace

# data[].attributes.attachment_link.description
Oil producers in the United States pumped an average 8.7 million barrels per day last week, according to the department of energy. Although that is impressive, this was not always the case. In October of 1973, the Arab members of OPEC placed an embargo on the U.S.

# data[].attributes.body
https://energyhistory.yale.edu/units/oil-shocks-1970s

Environmental activists, and some government officials,  declared that energy conservation and new energy sources such as solar power could solve the energy crisis, simultaneously mitigating the threat of “foreign oil,” fossil fuels’ environmental consequences, and potential future oil shortages.

President Nixon responded to the energy crisis by instituting a strict rationing program. In hindsight, this rationing program had more drastic effects at home than did OPEC.

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Teaching Unit Elements

In October 1973, the Arab state members of the Organization of Petroleum Exporting Countries (OPEC) declared that they would cut oil production, and limit exports to certain countries, to protest the United States' support for Israel in the Yom Kippur War. American policymakers believed that this decision, which they called an "embargo," would raise the market price of oil as supplies diminished and would lead to shortages of oil in the United States.

In response, President Richard Nixon instituted a rationing program intended to safeguard American oil supplies and ensure continued low prices. Nixon's policy helped lead to shortages at gasoline stations. Americans lined up at pumps for limited supplies, and engaged in a national conversation about the threat of "foreign oil" and the nation's reliance on petroleum. At the same time, the U.S. economy suffered simultaneous recession and inflation (termed stagflation), further weakening American confidence in the nation's stability and prestige at home and abroad. The 1973-74 "energy crisis" is a key moment in U.S. political, cultural, and economic history, and a central chapter in the history of the global oil economy.

Press coverage of OPEC's actions and of dwindling U.S. oil reserves prompted widespread political concern about U.S. reliance on imported oil. During the 1960s, the U.S. had strictly limited oil imports to the United States to protect U.S. oil producers. These import restrictions had the unintended effect of depleting domestic reserves even more quickly. At the same time, oil demand rose rapidly after World War II. Twentieth-century U.S. oil production peaked in 1970. In April 1973, the federal government loosened restrictions on oil imports, and they quickly grew from 2.2 million barrels per day in 1967 to 6 million barrels per day. When OPEC slashed its production in November 1973, government officials and the American public panicked about the power of foreign oil producers to impact life at home.

Anxiety about dependence on foreign oil dovetailed with growing environmental concerns about petroleum. In January 1969, a well blew out off the California coast near Santa Barbara, capturing headlines and television coverage. Smog from automobile emissions prompted new clean air regulation. Environmental activists, and some government officials, declared that energy conservation and new energy sources such as solar power could solve the energy crisis,simultaneously mitigating the threat of "foreign oil," fossil fuels' environmental consequences, and potential future oil shortages.

President Nixon responded to the energy crisis by instituting a strict rationing program. In hindsight, this rationing program had more drastic effects at home than did OPEC. The image of Americans waiting in long lines at the pump for gasoline symbolized the end of a post-World War II era of economic growth and prosperity and a new, uncertain future. President Carter directly addressed this uncertainty in an address he delivered to the public in 1979, which came to be known as the "crisis of confidence" speech. At the same time, Americans' understanding of the threat of "foreign oil" dovetailed with existing racist ideas about the Arabs and the Middle East, and U.S. popular culture produced a number of racist depictions of foreign oil producers taking advantage of the American public.

After the 1973 OPEC oil embargo and a sharp rise in the cost of oil and gasoline, American automakers began to produce smaller, more fuel-efficient cars. In this 1973 issue, Time magazine proclaimed the end to "big cars" on American roads. How might this have been seen as a significant shift in American culture?

This political cartoon satirizes the 1973 OPEC decision to reduce oil production to pressure the United States. It portrays an Arab leader holding up American leaders (including Richard Nixon), using a gas pump as a gun. What's the message of the cartoon?

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In October 1973, the Arab state members of the Organization of Petroleum Exporting Countries (OPEC) declared that they would cut oil production, and limit exports to certain countries, to protest the United States' support for Israel in the Yom Kippur War.

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https://www.worldvision.org/disaster-relief-news-stories/1980s-ethiopia-famine-facts

-Recurring drought,
-Failed harvests,
-Food scarcity,
-Conflict that kept aid from reaching people in occupied territory,
-Government policies that relocated families and routed relief to certain areas.

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The 1980s Ethiopia famine and hunger crisis was one of the worst humanitarian events of the 20th century, prompting a global response to bring food assistance and save lives. Ethiopia's food shortages and hunger crisis from 1983 to 1985 led to an estimated 1 million famine deaths, according to the United Nations. Millions more were displaced and left destitute, without resources to rebuild their lives.

The worst effects of drought and deprivation were in northern Ethiopia, where there was also a border conflict. Aid organizations, including World Vision, engaged in valiant efforts to bring relief to starving children and families, but much more help was needed. When BBC reporter Michael Buerk, traveling with World Vision, brought stories and images from a feeding site to home television sets in October 1984, masses were moved to donate to the relief effort.

The Ethiopia famine marked a change not only in disaster response fundraising - out of it also came new collaborations and methods for detecting the environmental and societal factors that lead to food insecurity so future famines can be avoided. Relief and development organizations like World Vision helped families and communities rebuild their livelihoods so they could better withstand future environmental shocks.

History of the Ethiopia famine

The 1980s famine in Ethiopia caught the world's attention and prompted generous aid and decades of long-term recovery.

1981 to 1984: Drought and conflict

Civil war and periodic shortfalls of rain lead to poor harvests, especially in drought-prone northern Ethiopia.

Some contested areas are inaccessible to aid organizations. The conflict also damages the economy.

1984: Hunger crisis

March: The Ethiopian government appeals for international food aid.

Summer: Aid agencies struggle to meet the needs of the hungry. Thousands are dying, and 6 million people are at risk of starvation.

October: Now, 8 million people risk starvation. Michael Buerk's BBC news footage shocks the world with images of "a biblical famine in the 20th century."

November: Aid support to Ethiopia increases because of public donations and interest.

December: Band Aid, a charity supergroup featuring mainly British and Irish musicians and recording artists, forms to raise money for relief efforts.

1985 to 1986: Relief and aftermath

March 1985: "We are the World," USA for Africa's single is released, followed by a Live Aid fundraising concert in July.

In the wake of the Live Aid concert, U2 lead singer, Bono, and his wife, Ali, volunteer at a World Vision feeding center.

In 1985 and 1986, hundreds of thousands of people are displaced - about 600,000 people are moved in an effort designed to cluster the population where services are provided.

FAQs: What you need to know about the 1980s Ethiopia famine

Explore frequently asked questions about the hunger crisis and famine in Ethiopia in the 1980s, and learn how you can help people who are hungry.

What is a famine?

A food crisis becomes a famine when there's so little food in the region that it causes large-scale malnutrition, starvation, and death.

Not all food crises become famines. To declare famine:

At least 20% of households in a given area face extreme food shortages with limited ability to cope.

More than 30% of children suffer from acute malnutrition.

Hunger causes more than two deaths each day for every 10,000 people.

When a food crisis no longer meets these technical criteria, a famine is no longer in effect.
BACK TO QUESTIONS
What caused the 1980s Ethiopia famine?

A perfect storm of adverse events led to the Ethiopia famine: recurring drought, failed harvests, food scarcity, conflict that kept aid from reaching people in occupied territory, and government policies that relocated families and routed relief to certain areas.
BACK TO QUESTIONS
Why are famines less likely to occur now?

Famines are happening less often now because warning systems are better at giving governments and relief agencies time to respond and prevent hunger and malnutrition from reaching famine levels.

Unfortunately, extreme hunger is still prevalent. Though farmers around the world produce enough food to feed everyone, 815 million people - 1 in 9 - go to bed hungry every night.
BACK TO QUESTIONS
In what parts of the world are people most likely to be hungry?

People in Africa are the most likely to experience hunger; 1 in 4 sub-Saharan Africans doesn't have enough nutritious food. However, the greatest number of hungry people live in southern Asia, including India, Pakistan, and Bangladesh. Find out more about the world's five worst places for hunger.

People are more often hungry in countries that lack a strong social safety net, are environmentally fragile, and are prone to natural disasters. By 2030, two-thirds of the world's poor will live in fragile, often conflict-ridden countries. World Vision is prioritizing its work in fragile contexts so children and families thrive without the threat of life diminished - or lost - to hunger and malnutrition.
BACK TO QUESTIONS
How can I help the hungry?

Pray: In the developing world, 1 in 9 people don't have enough to eat. Please pray for children and families to be sustained.

Give: No child should have to worry about a basic need like food. Donate to World Vision's hunger relief fund.

Sponsor a child: Show God's love to a child in need and join the fight against hunger.
BACK TO QUESTIONS
World Vision's work in Ethiopia

World Vision began working in Ethiopia in 1971. Responding to the historic famine, World Vision airdropped food into drought-plagued communities three years before the famine hit television screens. In fact, the BBC journalists traveled in a World Vision Twin Otter plane to witness the scenes of famine they filmed for the news report in October 1984.

In the decades since, Ethiopia has required periodic international food aid due to erratic rainfall, high population growth, deforestation, and a host of other factors. Periods of recurring drought and hunger continue into the 21st century, but the Ethiopian government, developed nations' governments, and international humanitarian organizations are working together to provide a safety net for families and communities.

Ethiopia's Antsokia Valley has transformed from a drought-stricken landscape into a lush, productive farming area.

World Vision continues to fight hunger in Ethiopia:

2011 to 2012: Horn of Africa hunger crisis follows three years of drought. World Vision aid includes food and nutrition, water and sanitation, health, economic empowerment, and education.

2015 to 2016: An El Niño-drought is exacerbated by extensive flooding, and disease outbreaks have a devastating impact on the lives and livelihoods of 9.7 million Ethiopians. World Vision responds with immediate aid and long-term assistance for food security and agricultural production, nutrition, health, water and sanitation, and education.

2017: The East Africa hunger crisis affects more than 8 million people in Ethiopia, as well as others in Kenya, South Sudan, and Somalia. Consecutive droughts have worsened the stressed food and nutrition situation. World Vision assists approximately 1 million people in East Africa each month with food, water, livelihoods, health, and child protection

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1980s Ethiopia famine: Facts, FAQs, and how to help | World Vision

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The 1980s Ethiopia famine and hunger crisis was one of the worst humanitarian events of the 20th century, prompting a global response to bring food assistance and save lives. Ethiopia's food shortages and hunger crisis from 1983 to 1985 led to an estimated 1 million famine deaths, according to the United Nations.

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https://www.worldvision.org/disaster-relief-news-stories/1980s-ethiopia-famine-facts

-2011 to 2012: Horn of Africa hunger crisis follows three years of drought. World Vision aid includes food and nutrition, water and sanitation, health, economic empowerment, and education.

-2015 to 2016: An El Niño-drought is exacerbated by extensive flooding, and disease outbreaks have a devastating impact on the lives and livelihoods of 9.7 million Ethiopians. World Vision responds with immediate aid and long-term assistance for food security and agricultural production, nutrition, health, water and sanitation, and education.

-2017: The East Africa hunger crisis affects more than 8 million people in Ethiopia, as well as others in Kenya, South Sudan, and Somalia. Consecutive droughts have worsened the stressed food and nutrition situation. World Vision assists approximately 1 million people in East Africa each month with food, water, livelihoods, health, and child protection

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The 1980s Ethiopia famine and hunger crisis was one of the worst humanitarian events of the 20th century, prompting a global response to bring food assistance and save lives. Ethiopia's food shortages and hunger crisis from 1983 to 1985 led to an estimated 1 million famine deaths, according to the United Nations. Millions more were displaced and left destitute, without resources to rebuild their lives.

The worst effects of drought and deprivation were in northern Ethiopia, where there was also a border conflict. Aid organizations, including World Vision, engaged in valiant efforts to bring relief to starving children and families, but much more help was needed. When BBC reporter Michael Buerk, traveling with World Vision, brought stories and images from a feeding site to home television sets in October 1984, masses were moved to donate to the relief effort.

The Ethiopia famine marked a change not only in disaster response fundraising - out of it also came new collaborations and methods for detecting the environmental and societal factors that lead to food insecurity so future famines can be avoided. Relief and development organizations like World Vision helped families and communities rebuild their livelihoods so they could better withstand future environmental shocks.

History of the Ethiopia famine

The 1980s famine in Ethiopia caught the world's attention and prompted generous aid and decades of long-term recovery.

1981 to 1984: Drought and conflict

Civil war and periodic shortfalls of rain lead to poor harvests, especially in drought-prone northern Ethiopia.

Some contested areas are inaccessible to aid organizations. The conflict also damages the economy.

1984: Hunger crisis

March: The Ethiopian government appeals for international food aid.

Summer: Aid agencies struggle to meet the needs of the hungry. Thousands are dying, and 6 million people are at risk of starvation.

October: Now, 8 million people risk starvation. Michael Buerk's BBC news footage shocks the world with images of "a biblical famine in the 20th century."

November: Aid support to Ethiopia increases because of public donations and interest.

December: Band Aid, a charity supergroup featuring mainly British and Irish musicians and recording artists, forms to raise money for relief efforts.

1985 to 1986: Relief and aftermath

March 1985: "We are the World," USA for Africa's single is released, followed by a Live Aid fundraising concert in July.

In the wake of the Live Aid concert, U2 lead singer, Bono, and his wife, Ali, volunteer at a World Vision feeding center.

In 1985 and 1986, hundreds of thousands of people are displaced - about 600,000 people are moved in an effort designed to cluster the population where services are provided.

FAQs: What you need to know about the 1980s Ethiopia famine

Explore frequently asked questions about the hunger crisis and famine in Ethiopia in the 1980s, and learn how you can help people who are hungry.

What is a famine?

A food crisis becomes a famine when there's so little food in the region that it causes large-scale malnutrition, starvation, and death.

Not all food crises become famines. To declare famine:

At least 20% of households in a given area face extreme food shortages with limited ability to cope.

More than 30% of children suffer from acute malnutrition.

Hunger causes more than two deaths each day for every 10,000 people.

When a food crisis no longer meets these technical criteria, a famine is no longer in effect.
BACK TO QUESTIONS
What caused the 1980s Ethiopia famine?

A perfect storm of adverse events led to the Ethiopia famine: recurring drought, failed harvests, food scarcity, conflict that kept aid from reaching people in occupied territory, and government policies that relocated families and routed relief to certain areas.
BACK TO QUESTIONS
Why are famines less likely to occur now?

Famines are happening less often now because warning systems are better at giving governments and relief agencies time to respond and prevent hunger and malnutrition from reaching famine levels.

Unfortunately, extreme hunger is still prevalent. Though farmers around the world produce enough food to feed everyone, 815 million people - 1 in 9 - go to bed hungry every night.
BACK TO QUESTIONS
In what parts of the world are people most likely to be hungry?

People in Africa are the most likely to experience hunger; 1 in 4 sub-Saharan Africans doesn't have enough nutritious food. However, the greatest number of hungry people live in southern Asia, including India, Pakistan, and Bangladesh. Find out more about the world's five worst places for hunger.

People are more often hungry in countries that lack a strong social safety net, are environmentally fragile, and are prone to natural disasters. By 2030, two-thirds of the world's poor will live in fragile, often conflict-ridden countries. World Vision is prioritizing its work in fragile contexts so children and families thrive without the threat of life diminished - or lost - to hunger and malnutrition.
BACK TO QUESTIONS
How can I help the hungry?

Pray: In the developing world, 1 in 9 people don't have enough to eat. Please pray for children and families to be sustained.

Give: No child should have to worry about a basic need like food. Donate to World Vision's hunger relief fund.

Sponsor a child: Show God's love to a child in need and join the fight against hunger.
BACK TO QUESTIONS
World Vision's work in Ethiopia

World Vision began working in Ethiopia in 1971. Responding to the historic famine, World Vision airdropped food into drought-plagued communities three years before the famine hit television screens. In fact, the BBC journalists traveled in a World Vision Twin Otter plane to witness the scenes of famine they filmed for the news report in October 1984.

In the decades since, Ethiopia has required periodic international food aid due to erratic rainfall, high population growth, deforestation, and a host of other factors. Periods of recurring drought and hunger continue into the 21st century, but the Ethiopian government, developed nations' governments, and international humanitarian organizations are working together to provide a safety net for families and communities.

Ethiopia's Antsokia Valley has transformed from a drought-stricken landscape into a lush, productive farming area.

World Vision continues to fight hunger in Ethiopia:

2011 to 2012: Horn of Africa hunger crisis follows three years of drought. World Vision aid includes food and nutrition, water and sanitation, health, economic empowerment, and education.

2015 to 2016: An El Niño-drought is exacerbated by extensive flooding, and disease outbreaks have a devastating impact on the lives and livelihoods of 9.7 million Ethiopians. World Vision responds with immediate aid and long-term assistance for food security and agricultural production, nutrition, health, water and sanitation, and education.

2017: The East Africa hunger crisis affects more than 8 million people in Ethiopia, as well as others in Kenya, South Sudan, and Somalia. Consecutive droughts have worsened the stressed food and nutrition situation. World Vision assists approximately 1 million people in East Africa each month with food, water, livelihoods, health, and child protection

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1980s Ethiopia famine: Facts, FAQs, and how to help | World Vision

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The 1980s Ethiopia famine and hunger crisis was one of the worst humanitarian events of the 20th century, prompting a global response to bring food assistance and save lives. Ethiopia's food shortages and hunger crisis from 1983 to 1985 led to an estimated 1 million famine deaths, according to the United Nations.

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https://en.wikipedia.org/wiki/1983%E2%80%931985_famine_in_Ethiopia

-A widespread famine affected Ethiopia from 1983 to 1985. The worst famine to hit the country in a century, it left 1.2 million dead. Four hundred thousand refugees left the country, and 2.5 million people were internally displaced.

https://www.iowafba.org/impacts-hunger-economy

​-$130.5 billion due to illness costs linked to hunger and food insecurity. $19.2 billion - value of poor educational outcomes and lower lifetime earnings linked to hunger and food insecurity

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According to Oxfam (and also Human Rights Watch), Mengistu Haile Mariam helped to organize policies that multiplied the effects of the famine. He was sentenced to death in Ethiopia for crimes committed during his government (Derg). As of 2018, Mengistu lived in exile in Zimbabwe.[3]

A widespread famine affected Ethiopia from 1983 to 1985. The worst famine to hit the country in a century, it affected 7.75 million people (out of Ethiopia's 38-40 million) and left approximately 300,000 to 1.2 million dead. 2.5 million people were internally displaced whereas 400,000 refugees left Ethiopia. Almost 200,000 children were orphaned.

According to Human Rights Watch, more than half its mortality could be attributed to " human rights abuses causing the famine to come earlier, strike harder and extend further than would otherwise have been the case". According to the United States Agency for International Development, "in the fall of 1984, the hardest hit regions were Tigray, Wollo, and Eritrea - areas with extremely limited road and transportation networks. Moreover, these regions were the scenes of longstanding anti-government rebellions which created precarious security situations." Other areas of Ethiopia experienced famine for similar reasons, resulting in tens of thousands of additional deaths. The famine as a whole took place a decade into the Ethiopian Civil War.

The famine of 1983-1985 is officially ascribed to drought. In recent years, the favoured explanation for the famine of 1983-1985 is " war and drought". According to the organizations Human Rights Watch and Oxfam, the famines that struck Ethiopia between 1961 and 1985, and in particular the one of 1983-1985, were in part created by the government's military policies, specifically a set of so-called counter-insurgency strategies (against Tigray People's Liberation Front guerrilla-soldiers), and for "social transformation" in non-insurgent areas (against people of Tigray Province, Wollo Province and such).

Food Supply (Energy base)[15] These are supplied values, intake values are about 60-70% of supplied energy.
Other areas (Yr 2010):[16]
Africa, sub-Sahara: 2170 kcal/capita/day
N.E. and N. Africa: 3120 kcal/capita/day
South Asia: 2450 kcal/capita/day

Throughout the feudal era, famines were common in Ethiopia, especially in the north. Local famines were also frequent but also unrecorded. The most infamous was the "Great Ethiopian Famine" which killed approximately one third of Ethiopia's population between 1888 and 1892. In 1958, famine killed 100,000 people. In 1966, famine killed 50,000.

In 1973, drought and feudal extractions caused a famine that killed 40,000 to 200,000 people in Wollo, mostly of the marginalized Afar herders and Oromo tenant farmers, who suffered from the widespread confiscation of land by the wealthy classes and government of Emperor Haile Selassie. Despite attempts to suppress news of this famine, leaked reports contributed to the undermining of the government's legitimacy and served as a rallying point for dissidents, who complained that the wealthy classes and the Ethiopian government had ignored both the famine and the people who had died. Then in 1974, a group of military officers known as the Derg overthrew Haile Selassie. The Derg addressed the Wollo famine by creating the Relief and Rehabilitation Commission (RRC) to examine the causes of the famine and prevent its recurrence, and then abolishing feudal tenure in March 1975. The RRC initially enjoyed more independence from the Derg than any other ministry, largely due to its close ties to foreign donors and the quality of some of its senior staff. As a result, insurgencies began to spread into the country's administrative regions.

By late 1976 insurgencies existed in all of the country's fourteen administrative regions. The Red Terror (1976-1978) marked the beginning of a steady deterioration in the economic state of the nation, coupled with extractive policies targeting rural areas. The reforms of 1975 were revoked and the Agricultural Marketing Corporation (AMC) was tasked with extracting food from rural peasantry at low rates to placate the urban populations. The very low fixed price of grain served as a disincentive to production, and some peasants had to buy grain on the open market in order to meet their AMC quota. Citizens in Wollo, which continued to be stricken with drought, were required to provide a "famine relief tax" to the AMC until 1984. The Derg also imposed a system of travel permits to restrict peasants from engaging in non-agricultural activities, such as petty trading and migrant labor, a major form of income supplementation. However, the collapse of the system of State Farms, a large employer of seasonal laborers, resulted in an estimated 500,000 farmers in northern Ethiopia losing a component of their income. Grain wholesaling was declared illegal in much of the country, resulting in the number of grain dealers falling from between 20,000 and 30,000 to 4,942 in the decade after the revolution.

The nature of the RRC changed as the government became increasingly authoritarian. Immediately after its creation, its experienced core of technocrats produced highly regarded analyses of Ethiopian famine and ably carried out famine relief efforts. However, by the 1980s, the Derg had compromised its mission. The RRC began with the innocuous scheme of creating village workforces from the unemployed in state farms, and government agricultural schemes but, as the counter-insurgency intensified, the RRC was given responsibility for a program of forced resettlement and villagization. As the go-between for international aid organizations and foreign donor governments, the RRC redirected food to government militias, in particular in Eritrea and Tigray. It also encouraged international agencies to set up relief programs in regions with surplus grain production, which allowed the AMC to collect the excess food. Finally, the RRC carried out a disinformation campaign during the 1980s famine, in which it portrayed the famine as being solely the result of drought and overpopulation and tried to deny the existence of the armed conflict that was occurring precisely in the famine-affected regions. The RRC also claimed that the aid being given by it and its international agency partners were reaching all of the famine victims.

The Mengistu Haile Mariam-led military dictatorship ( Derg) used this 1983-1985 famine in Ethiopia as government military policy by restricting food supplies for strategy against the counter-insurgency of the Tigray People's Liberation Front's guerrilla-soldiers, and for "social transformation" in non-insurgent areas (against people of Tigray province, Welo province and such). Due to organized government policies that deliberately multiplied the effects of the famine, around 1.2 million people died in Ethiopia from the famine where the majority of the death tolls were from the present day Tigray Region and Amhara Region and other parts of northern Ethiopia.

Before the 1983-1985 famine, two decades of wars of national liberation and other anti-government conflict had raged throughout northern Ethiopia and present-day Eritrea. The most prominent feature of the fighting was the use of indiscriminate violence against civilians by the Ethiopian Army and Air Force. Excluding those killed by famine and resettlement, more than 150,000 people were killed.

The economy of Ethiopia is based on agriculture: almost half of GDP, 60% of exports, and 80% of total employment come from agriculture.

Four Ethiopian provinces - Gojjam, Hararghe, Tigray and Wollo - all received record low rainfalls in the mid-1980s. In the south, a separate and simultaneous cause was the government's response to Oromo Liberation Front (OLF) insurgency. In 1984, Mengistu Haile Mariam announced that 46% of the Ethiopian Gross National Product would be allocated to military spending, creating the largest standing army in sub-Saharan Africa; the allocation for health in the government budget fell from 6% in 1973-1974 to 3% by 1990-1991.

Although a UN estimate of one million deaths is often quoted for the 1983-1985 famine, this figure has been challenged by famine scholar Alex de Waal. In a major study, de Waal criticized the United Nations for being "remarkably cavalier" about the numbers of people who died, with the UN's one-million figure having "absolutely no scientific basis whatsoever," a fact which represents "a trivialization and dehumanization of human misery". De Waal estimates that 400,000 to 500,000 died in the famine.

Nevertheless, the magnitude of the disaster has been well documented: in addition to hundreds of thousands of deaths, millions were made destitute. Media activity in the West, along with the size of the crisis, led to the " Do They Know It's Christmas?" charity single and the July 1985 concert Live Aid, which elevated the international profile of the famine and helped secure international aid. In the early to mid-1980s there were famines in two distinct regions of the country, resulting in several studies of one famine that try to extrapolate to the other or less cautious writers referring to a single widespread famine. The famine in the southeast of the country was brought about by the Derg's counterinsurgency efforts against the OLF. However, most media referring to "the Ethiopian famine" of the 1980s refers to the severe famine in 1983-85 centered on Tigray and northern Wollo, which further affected Eritrea, Begemder and northern Shewa. Living standards had been declining in these government-held regions since 1977, a "direct consequence" of the Derg's agricultural policies. A further major contributing factor to the famine were the Ethiopian government's enforced resettlement programs, utilized as part of its counter-insurgency campaign.

Despite RRC claims to have predicted the famine, there was little data as late as early 1984 indicating an unusually severe food shortage. Following two major droughts in the late 1970s, 1980 and 1981 were rated by the RRC as "normal" and "above normal". The 1982 harvest was the largest ever, with the exception of central and eastern Tigray. RRC estimates for people "at-risk" of famine rose to 3.9 million in 1983 from 2.8 million in 1982, which was less than the 1981 estimate of 4.5 million. In February and March 1983, the first signs of famine were recognized as poverty-stricken farmers began to appear at feeding centers, prompting international aid agencies to appeal for aid and the RRC to revise its famine assessment. The harvest after the main ( meher) harvest in 1983 was the third largest on record, with the only serious shortfall again being recorded in Tigray. In response, grain prices in the two northern regions of Begemder and Gojjam fell. However, famine recurred in Tigray. The RRC claimed in May 1984 that the failure of the short rains ( belg) constituted a catastrophic drought while neglecting to state that the belg crops form a fourth of crop yields where the belg falls, but none at all in the majority of Tigray. A quantitative measure of the famine are grain prices, which show high prices in eastern and central Tigray, spreading outward after the 1984 crop failure.

Despite the fact that the government had access to only a minority of the famine-stricken population in the north, the great majority of the relief was channeled through the government side, prolonging the war.

The primary government response to the drought and famine was the decision to uproot large numbers of peasants who lived in the affected areas in the north and to resettle them in the west and southern part of the country. In 1985 and 1986, about 600,000 people were moved, many forcibly, from their home villages and farms by the military and transported to various regions in the south. Many peasants fled rather than allow themselves to be resettled; many of those who were resettled sought later to return to their native regions. Several human rights organizations claimed that tens of thousands of peasants died as a result of forced resettlement. According to Human Rights Watch, at least 50,000 people died.

International view

Close to 8 million people became famine victims during the drought of 1984, and over 1 million died. In the same year (23 October), a BBC news crew was the first to document the famine, with Michael Buerk describing "a biblical famine in the 20th century" and "the closest thing to hell on Earth". The report shocked Britain, motivating its citizens to inundate relief agencies, such as Save the Children, with donations, and also to bring the world's attention to the crisis in Ethiopia.

Bob Geldof co-founded Band Aid and sang as part of the chorus of their song "Do They Know It's Christmas?"

In November 1984, the British Royal Air Force carried out the first airdrops from Hercules C-130s delivering food to the starving people. Other countries including Sweden, East and West Germany, Poland, Canada, United States, the Soviet Union and Yugoslavia were also involved in the international response.

Buerk's news piece on the BBC was seen by Irish singer Bob Geldof, who quickly organised the charity supergroup Band Aid, primarily made up of the biggest British and Irish artists of the era. Their single, " Do They Know It's Christmas?", was released on 3 December 1984 and became Britain's best-selling single within a few weeks, eventually selling 3.69 million copies domestically. It raised £8 million for famine relief within twelve months of its release. Other charity singles soon followed; released in March 1985, " We Are the World" by USA for Africa was the most successful of these, selling 20 million copies worldwide.

Live Aid, a 1985 fund-raising effort headed by Geldof, induced millions of people in the West to donate money and to urge their governments to participate in the relief effort in Ethiopia. Some of the proceeds also went to the famine hit areas of Eritrea. The event raised £145 million.

Quincy Jones was a key figure in the production and recording of "We Are the World".

In France, supergroup Chanteurs sans frontières released "SOS Éthiopie", which sold 1 million copies and raised 10 million francs (about 1.2 million dollars).

In Canada, supergroup Northern Lights, consisting of The Guess Who, Rush, Anne Murray, John Candy, Neil Young, and among others sang " Tears Are Not Enough", which was produced by David Foster.

In Yugoslavia, supergroup YU Rock Misija recorded the charity single " Za milion godina" and organized a corresponding charity concert, raising a total of US$426,000.

Other charity initiatives raised money for Ethiopia. On 27 January 1985, members of the Church of Jesus Christ of Latter-day Saints participated in a special fast, where members went without food for two meals and donated the money they would have used to buy food. The fast raised $6 million for the famine victims in Ethiopia.

The manner in which international aid was routed through the RRC gave rise to criticism that forever changed the way in which governments and NGOs respond to international emergencies taking place within conflict situations. International aid supplied to the government and to relief agencies working alongside the government became part of the counter-insurgency strategy of the government. It, therefore, met a real and immediate need but also prolonged the life of Mengistu's government. The response to the emergency raised disturbing questions about the relationship between humanitarian agencies and host governments.

However, according to Peter Gill, in his 2010 book Foreigners and Famine: Ethiopia Since Live Aid, 7.9 million people faced starvation in 1984, resulting in over 600,000 deaths; while in 2003 13.2 million "faced the prospect of a famine and only 300 died".

Aid money and rebel groups

On 3 March 2010, Martin Plaut of the BBC published evidence that millions of dollars worth of aid to the Ethiopian famine were spent in buying weapons by the Tigrayan People's Liberation Front, a communist group trying to overthrow the Ethiopian communist government at the time. Rebel soldiers said they posed as merchants as "a trick for the NGOs". The report also cited a CIA document saying aid was "almost certainly being diverted for military purposes". One rebel leader estimated $95 million (£63 million). Plaut also said that other NGOs were under the influence or control of the Derg military junta. Some journalists suggested that the Derg was able to use Live Aid and Oxfam money to fund its enforced resettlement and " villagization" programs, under which at least 3 million people are said to have been displaced and between 50,000 and 100,000 killed. These reports were later refuted by the Band Aid Trust and after a seven-month investigation, the BBC found its reporting had been misleading regarding Band Aid's money and had also contained numerous errors of fact and misstatements of evidence:

Following a complaint from the Band Aid Trust the BBC's Editorial Complaints Unit found in its ruling that there was no evidence to support such statements and that "they should not have been broadcast". It also added that "The BBC wishes to apologise unreservedly to the Band Aid Trust for the misleading and unfair impression which was created".

Outsider estimates like Alex de Waal's, believe the famine of 1983-1985 killed a minimum of 400,000 people (not counting those killed by resettlement), just in northern Ethiopia (Tigray Province); "Something over half of this mortality can be attributed to human rights abuses causing the famine to come earlier, strike harder, and extend further than would otherwise have been the case."

The United States Agency for International Development which provided foreign assistance during the famine, estimated that "more than 300,000" died.

Other insider estimates put the total death toll in Ethiopia at "1.2 million dead, 400,000 refugees outside the country, 2.5 million people internally displaced, and almost 200,000 orphans".

Famines and droughts

Related

de Waal, Alex (1991). Evil Days: Thirty Years of War and Famine in Ethiopia. New York & London: Human Rights Watch. ISBN 1-56432-038-3.

Johns, Michael (1988). "Gorbachev's Holocaust: Soviet Complicity in Ethiopia's Famine". Policy Review.

Ofcansky, Thomas P; Berry, LaVerle (1993). Ethiopia: A Country Study. Library of Congress Country Studies (4th ed.). Washington, DC: Federal Research Division, Library of Congress. ISBN 0-8444-0739-9.

Webb, Patrick; von Braun, Joachim; Yohannes, Yisehac (1992). Famine in Ethiopia: Policy Implications of Coping Failure at National and Household Levels. Washington, DC: International Food Policy Research Institute. ISBN 0-89629-095-6.

Webb, Patrick; von Braun, Joachim (1994). Famine and Food Security in Ethiopia: Lessons for Africa. Chichester: John Wiley and Sons.

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1983-1985 famine in Ethiopia - Wikipedia

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A widespread famine affected Ethiopia from 1983 to 1985. The worst famine to hit the country in a century, it affected 7.75 million people (out of Ethiopia's 38-40 million) and left approximately 300,000 to 1.2 million dead. 2.5 million people were internally displaced whereas 400,000 refugees left Ethiopia.

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https://mitsloan.mit.edu/ideas-made-to-matter/heres-how-much-2008-bailouts-really-cost

Policymakers from that time argue that bailing out critical financial institutions was necessary to stave off an even greater meltdown. Others maintain the government should have taken even more aggressive actions — to save Lehman Brothers, for instance, or rescue homeowners with underwater mortgages. Still others say that the government shouldn’t have used taxpayers’ money to save wealthy bankers.

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Ask three people their opinion of the U.S. government's bailouts during the 2008 financial crisis, and you'll likely get three different answers.

You can't know if a policy is worthwhile if you don't know how much it costs.
Deborah J. Lucas Professor
Policymakers from that time argue that bailing out critical financial institutions was necessary to stave off an even greater meltdown. Others maintain the government should have taken even more aggressive actions - to save Lehman Brothers, for instance, or rescue homeowners with underwater mortgages. Still others say that the government shouldn't have used taxpayers' money to save wealthy bankers.

Each of those groups can find numbers to support their conflicting views of the bailouts' price tag.

In 2012, then-President Barack Obama claimed the government got back "every dime used to rescue the banks." Meanwhile, ProPublica's ongoing " Bailout Tracker" reported a total net government profit of $96.6 billion as of February 2019, a figure that includes money paid back by bailed-out companies as well as revenue from dividends, loan interest, warrants, and other proceeds. In contrast, a 2015 Forbes article claimed the U.S. had by then paid out $4.6 trillion of $16.8 trillion in committed funds.

Redoing the math

None of those numbers are accurate, according to Deborah J. Lucas, MIT Sloan distinguished professor of finance and director of the MIT Golub Center for Finance and Policy.

Popular accounts of bailout costs tend to severely overstate or understate their economically relevant value, Lucas writes in a paper to be published in the Annual Review of Financial Economics.

According to Lucas, an accurate measure of cost requires taking a fair value approach - one that considers the full range of future gains and losses, and that recognizes the cost of that risk. Lucas draws selectively from existing costs estimates, such as those from the U.S. Congressional Budget Office, which use that method, and she augments those numbers with calculations based on various data sources from that period.

By those calculations, the total direct cost of crisis-related bailouts on a fair value basis was about $498 billion, which amounted to 3.5 percent of gross domestic product in 2009.

As for who directly benefitted, Lucas found that the main winners were the large, unsecured creditors of large financial institutions. While their exact identities have not been made public, most are likely to have been large institutional investors such as banks, pension and mutual funds, insurance companies, and sovereigns.

More bailouts to come?

Why is it important to get the number right? Meaningful measurement of the direct costs of bailouts will arm policymakers with critical information on which to base decisions in future crises, said Lucas.

And credible cost assessment may help reduce political and policy discord around fairness. "Unless we can agree on what things cost, we're not going to be able to agree on the right policy response," she said.

Public aversion notwithstanding, "most economists don't believe that we can prevent all financial crises," she said. "And that means we're likely to bail out some financial institutions in the future."

When crisis hits, policymakers have to act fast - which is why it makes sense now to study the cost and benefits of the various tools available to them.

The many new regulations put in place to prevent the need for future bailouts also require further study. "Policymakers have to weigh the costs of future bailouts against the costs of the regulatory burden imposed by trying to prevent the need for them," Lucas said.

"We haven't had an explicit conversation about what regulations are cost-effective or what government policies could be most cost-effective in the future," Lucas said. "And you can't know if a policy is worthwhile if you don't know how much it costs."

Inventory of 2009 bailouts

Lucas's analysis of the direct costs and direct beneficiaries of the major U.S. government bailouts includes:

The Troubled Asset Relief Program, in which the government purchased equity and warrants in distressed banks as well as in General Motors and AIG.

Government capital infusions into Fannie Mae and Freddie Mac (to this day still under government conservatorship).

Government losses arising from ongoing and expanded federal loan and loan guarantee programs, including on mortgage guarantees of the Federal Housing Administration, and on federal student loans.

Increased FDIC coverage (which temporarily increased the cap on insured deposits to $250,000 and created a program that gave unlimited coverage of transaction accounts to banks).

Federal Reserve emergency actions designed to provide more liquidity to the market.

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Here's how much the 2008 bailouts really cost | MIT Sloan

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Estimates are all over the place. Here's how much the U.S. really spent on the big bailouts - and who really benefitted.

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https://mitsloan.mit.edu/ideas-made-to-matter/heres-how-much-2008-bailouts-really-cost

In 2012, then-President Barack Obama claimed the government got back “every dime used to rescue the banks.” Meanwhile, ProPublica’s ongoing “Bailout Tracker” reported a total net government profit of $96.6 billion as of February 2019, a figure that includes money paid back by bailed-out companies as well as revenue from dividends, loan interest, warrants, and other proceeds. In contrast, a 2015 Forbes article claimed the U.S. had by then paid out $4.6 trillion of $16.8 trillion in committed funds

# data[].attributes.attachment_link.readable_text
Ask three people their opinion of the U.S. government's bailouts during the 2008 financial crisis, and you'll likely get three different answers.

You can't know if a policy is worthwhile if you don't know how much it costs.
Deborah J. Lucas Professor
Policymakers from that time argue that bailing out critical financial institutions was necessary to stave off an even greater meltdown. Others maintain the government should have taken even more aggressive actions - to save Lehman Brothers, for instance, or rescue homeowners with underwater mortgages. Still others say that the government shouldn't have used taxpayers' money to save wealthy bankers.

Each of those groups can find numbers to support their conflicting views of the bailouts' price tag.

In 2012, then-President Barack Obama claimed the government got back "every dime used to rescue the banks." Meanwhile, ProPublica's ongoing " Bailout Tracker" reported a total net government profit of $96.6 billion as of February 2019, a figure that includes money paid back by bailed-out companies as well as revenue from dividends, loan interest, warrants, and other proceeds. In contrast, a 2015 Forbes article claimed the U.S. had by then paid out $4.6 trillion of $16.8 trillion in committed funds.

Redoing the math

None of those numbers are accurate, according to Deborah J. Lucas, MIT Sloan distinguished professor of finance and director of the MIT Golub Center for Finance and Policy.

Popular accounts of bailout costs tend to severely overstate or understate their economically relevant value, Lucas writes in a paper to be published in the Annual Review of Financial Economics.

According to Lucas, an accurate measure of cost requires taking a fair value approach - one that considers the full range of future gains and losses, and that recognizes the cost of that risk. Lucas draws selectively from existing costs estimates, such as those from the U.S. Congressional Budget Office, which use that method, and she augments those numbers with calculations based on various data sources from that period.

By those calculations, the total direct cost of crisis-related bailouts on a fair value basis was about $498 billion, which amounted to 3.5 percent of gross domestic product in 2009.

As for who directly benefitted, Lucas found that the main winners were the large, unsecured creditors of large financial institutions. While their exact identities have not been made public, most are likely to have been large institutional investors such as banks, pension and mutual funds, insurance companies, and sovereigns.

More bailouts to come?

Why is it important to get the number right? Meaningful measurement of the direct costs of bailouts will arm policymakers with critical information on which to base decisions in future crises, said Lucas.

And credible cost assessment may help reduce political and policy discord around fairness. "Unless we can agree on what things cost, we're not going to be able to agree on the right policy response," she said.

Public aversion notwithstanding, "most economists don't believe that we can prevent all financial crises," she said. "And that means we're likely to bail out some financial institutions in the future."

When crisis hits, policymakers have to act fast - which is why it makes sense now to study the cost and benefits of the various tools available to them.

The many new regulations put in place to prevent the need for future bailouts also require further study. "Policymakers have to weigh the costs of future bailouts against the costs of the regulatory burden imposed by trying to prevent the need for them," Lucas said.

"We haven't had an explicit conversation about what regulations are cost-effective or what government policies could be most cost-effective in the future," Lucas said. "And you can't know if a policy is worthwhile if you don't know how much it costs."

Inventory of 2009 bailouts

Lucas's analysis of the direct costs and direct beneficiaries of the major U.S. government bailouts includes:

The Troubled Asset Relief Program, in which the government purchased equity and warrants in distressed banks as well as in General Motors and AIG.

Government capital infusions into Fannie Mae and Freddie Mac (to this day still under government conservatorship).

Government losses arising from ongoing and expanded federal loan and loan guarantee programs, including on mortgage guarantees of the Federal Housing Administration, and on federal student loans.

Increased FDIC coverage (which temporarily increased the cap on insured deposits to $250,000 and created a program that gave unlimited coverage of transaction accounts to banks).

Federal Reserve emergency actions designed to provide more liquidity to the market.

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Here's how much the 2008 bailouts really cost | MIT Sloan

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Estimates are all over the place. Here's how much the U.S. really spent on the big bailouts - and who really benefitted.

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https://www.thebalance.com/what-was-the-bank-bailout-bill-3305675

Congress debated the pros and cons of such a massive intervention. Political leaders wanted to protect the taxpayer, but they also didn't want to let businesses off the hook for making bad decisions. However, most in Congress recognized the need to act swiftly to avoid a further financial meltdown. With banks afraid to disclose their bad debt, it became a case of fear feeding on fear—which would have led to a downgrade in their debt rating, a decline in their stock price, and an inability to raise capital. The rumors and resulting panic locked up the credit markets.

# data[].attributes.attachment_link.readable_text
On October 3, 2008, President George W. Bush signed the $700 billion Emergency Economic Stabilization Act (EESA) of 2008 after Treasury Secretary Henry Paulson asked Congress to approve a bailout to buy mortgage-backed securities that were in danger of defaulting. By doing so, Paulson wanted to take these debts off the books of the banks, hedge funds, and pension funds that held them. His goal was to renew confidence in the functioning of the global banking system and end the financial crisis.﻿﻿

Troubled Assets Relief Program

The bill established the Troubled Assets Relief Program (TARP), which was originally designed around a reverse auction. Troubled banks would submit a bid price to sell their assets to TARP, and each auction was to be for a particular asset class. TARP administrators would select the lowest price for each asset class to ensure that the government didn't pay too much for distressed assets. However, this didn't happen because it took too long to develop the auction program.﻿﻿

On October 14, 2008, the Treasury Department used $105 billion in TARP funds to launch the Capital Purchase Program, which purchased preferred stock in the eight leading banks. By the time TARP expired on October 3, 2010, Treasury had used the funds in four other areas:﻿﻿

$67.8 billion to the $182 billion bailout of insurance giant American International Group (AIG)

$80.7 billion to bail out the Big Three auto companies

$20 billion to the Federal Reserve for the Term Asset-Backed Securities Loan Facility, which lent money to its member banks so they could continue offering credit to homeowners and businesses

$75 billion to help homeowners refinance or restructure their mortgages with the Homeowner Affordability and Stability Plan

The Treasury disbursed $440 billion of TARP funds in total and, by 2018, it had put $442.6 billion back. It did this by nationalizing companies when prices were low and selling them when prices were high. President Barack Obama could have used more of the $700 billion, but he didn't want to bail out more banks. Instead, he launched the $787 billion Economic Stimulus Package. The bill required the president to develop a plan to recoup losses from the financial industry if needed.​ As a result, the taxpayer was never at risk of losing $700 billion.﻿﻿

More Than Just TARP

On September 20, 2008, Secretary Paulson submitted a three-page proposal to the House of Representatives, but many in the House felt it was forcing taxpayers to reward bad banking decisions. Supporters added many safeguards to try and get the bill to pass, but the House voted against it on September 29, 2008. As a result, global markets plummeted.

The Senate reintroduced the proposal by attaching it to a bill that was already under consideration, and the House also approved that version on October 3, 2008. The final act included other much-needed oversights, but the most important was help for homeowners facing foreclosure. It required the Treasury to both guarantee home loans and assist homeowners in adjusting mortgage terms through HOPE NOW. It also increased the Federal Deposit Insurance Corporation limit for bank deposits to $250,000 per account and allowed them to tap federal funds as needed through 2009. That allayed any fears that the agency itself might go bankrupt.

The bill allowed the Securities and Exchange Commission (SEC) to suspend the mark-to-market rule, which forced banks to keep their mortgages valued at present-day levels. This meant that bad loans had to be valued at less than their probable true worth and could not have been resold in the panic-stricken climate of 2008. EESA included an extension of the Alternative Minimum Tax patch, tax credits for research and development, and relief for hurricane survivors. The Senate vote gave the bailout plan new life with these tax breaks and kept six other provisions added by the House:

An oversight committee to review the Treasury's purchase and sale of mortgages-comprised of Federal Reserve Chair Ben Bernanke, and the leaders of the SEC, Federal Home Finance Agency, and Department of Housing and Urban Development

Bailout installments, starting with $250 billion

The ability for the Treasury to negotiate a government equity stake in companies that received bailout assistance

Limits on executive compensation of rescued firms

Government-sponsored insurance of assets in troubled firms

A requirement that the president proposes legislation to recoup losses from the financial industry if any still existed after five years

Why the Bailout Bill Was Necessary

On September 16, 2008, the $62.6 billion Reserve Primary Fund was under attack as investors were taking out money too fast. They worried that the Fund would go bankrupt due to its investments in Lehman Brothers. The next day, businesses pulled a record $140 billion out of money market accounts and moved the funds to Treasury bills, causing yields to drop to zero. Money market accounts had been considered one of the safest investments. To stem the panic, the U.S. Treasury Department agreed to insure money market funds for a year. The SEC banned short-selling financial stocks until October 2 to reduce volatility in the stock market.

The U.S. government bought these bad mortgages because banks were afraid to lend to each other. This fear caused Libor rates to be much higher than the fed funds rate and sent stock prices plummeting. Financial firms were unable to sell their debt, and without the ability to raise capital, these firms were in danger of going bankrupt, which is what happened to Lehman Brothers. It would have happened to the AIG and Bear Stearns without federal intervention.

Congress debated the pros and cons of such a massive intervention. Political leaders wanted to protect the taxpayer, but they also didn't want to let businesses off the hook for making bad decisions. However, most in Congress recognized the need to act swiftly to avoid a further financial meltdown. With banks afraid to disclose their bad debt, it became a case of fear feeding on fear-which would have led to a downgrade in their debt rating, a decline in their stock price, and an inability to raise capital. The rumors and resulting panic locked up the credit markets.

Alternative Options

When the bill was introduced, many legislators were against it and proposed other ideas. Here are some and their probable impacts:

Buy Mortgages

John McCain proposed having the government buy $300 billion in mortgages from homeowners who were in danger of foreclosing, which would have reduced the number of toxic mortgages on banks' balance sheets. It could have even helped stop falling housing prices by reducing foreclosures, but it didn't address the credit crisis, which was caused by banks being afraid to lend to each other and their consequent hoarding of cash.﻿﻿

Cut Taxes for Banks

The Republican Study Committee (RSC) proposed suspending the capital gains tax for two years, allowing banks to sell assets without being taxed. Unfortunately, it was losses on assets that were the issue, not gains. The RSC proposed transitioning Fannie Mae and Freddie Mac to private companies and stabilizing the dollar, but neither of those addressed the credit crisis. On the other hand, the RSC's proposal to suspend mark-to-market accounting would have alleviated bank write-down of assets sooner. The U.S. Financial Accounting Standards Board eased the rule in 2009.

Some suggested just letting the markets run their course. In that scenario, many businesses around the world would have likely shut down due to a lack of credit-creating a global depression. The large-scale unemployment could have led to riots or another Great Depression.

# data[].attributes.attachment_link.title
What Did the Bank Bailout Bill Really Do?

# data[].attributes.attachment_link.description
On October 3, 2008, President George W. Bush signed the $700 billion Emergency Economic Stabilization Act (EESA) of 2008 after Treasury Secretary Henry Paulson asked Congress to approve a bailout to buy mortgage-backed securities that were in danger of defaulting.

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https://www.thebalance.com/what-was-the-bank-bailout-bill-3305675

-Buy Mortgages

-Cut Taxes for Banks

# data[].attributes.attachment_link.readable_text
On October 3, 2008, President George W. Bush signed the $700 billion Emergency Economic Stabilization Act (EESA) of 2008 after Treasury Secretary Henry Paulson asked Congress to approve a bailout to buy mortgage-backed securities that were in danger of defaulting. By doing so, Paulson wanted to take these debts off the books of the banks, hedge funds, and pension funds that held them. His goal was to renew confidence in the functioning of the global banking system and end the financial crisis.﻿﻿

Troubled Assets Relief Program

The bill established the Troubled Assets Relief Program (TARP), which was originally designed around a reverse auction. Troubled banks would submit a bid price to sell their assets to TARP, and each auction was to be for a particular asset class. TARP administrators would select the lowest price for each asset class to ensure that the government didn't pay too much for distressed assets. However, this didn't happen because it took too long to develop the auction program.﻿﻿

On October 14, 2008, the Treasury Department used $105 billion in TARP funds to launch the Capital Purchase Program, which purchased preferred stock in the eight leading banks. By the time TARP expired on October 3, 2010, Treasury had used the funds in four other areas:﻿﻿

$67.8 billion to the $182 billion bailout of insurance giant American International Group (AIG)

$80.7 billion to bail out the Big Three auto companies

$20 billion to the Federal Reserve for the Term Asset-Backed Securities Loan Facility, which lent money to its member banks so they could continue offering credit to homeowners and businesses

$75 billion to help homeowners refinance or restructure their mortgages with the Homeowner Affordability and Stability Plan

The Treasury disbursed $440 billion of TARP funds in total and, by 2018, it had put $442.6 billion back. It did this by nationalizing companies when prices were low and selling them when prices were high. President Barack Obama could have used more of the $700 billion, but he didn't want to bail out more banks. Instead, he launched the $787 billion Economic Stimulus Package. The bill required the president to develop a plan to recoup losses from the financial industry if needed.​ As a result, the taxpayer was never at risk of losing $700 billion.﻿﻿

More Than Just TARP

On September 20, 2008, Secretary Paulson submitted a three-page proposal to the House of Representatives, but many in the House felt it was forcing taxpayers to reward bad banking decisions. Supporters added many safeguards to try and get the bill to pass, but the House voted against it on September 29, 2008. As a result, global markets plummeted.

The Senate reintroduced the proposal by attaching it to a bill that was already under consideration, and the House also approved that version on October 3, 2008. The final act included other much-needed oversights, but the most important was help for homeowners facing foreclosure. It required the Treasury to both guarantee home loans and assist homeowners in adjusting mortgage terms through HOPE NOW. It also increased the Federal Deposit Insurance Corporation limit for bank deposits to $250,000 per account and allowed them to tap federal funds as needed through 2009. That allayed any fears that the agency itself might go bankrupt.

The bill allowed the Securities and Exchange Commission (SEC) to suspend the mark-to-market rule, which forced banks to keep their mortgages valued at present-day levels. This meant that bad loans had to be valued at less than their probable true worth and could not have been resold in the panic-stricken climate of 2008. EESA included an extension of the Alternative Minimum Tax patch, tax credits for research and development, and relief for hurricane survivors. The Senate vote gave the bailout plan new life with these tax breaks and kept six other provisions added by the House:

An oversight committee to review the Treasury's purchase and sale of mortgages-comprised of Federal Reserve Chair Ben Bernanke, and the leaders of the SEC, Federal Home Finance Agency, and Department of Housing and Urban Development

Bailout installments, starting with $250 billion

The ability for the Treasury to negotiate a government equity stake in companies that received bailout assistance

Limits on executive compensation of rescued firms

Government-sponsored insurance of assets in troubled firms

A requirement that the president proposes legislation to recoup losses from the financial industry if any still existed after five years

Why the Bailout Bill Was Necessary

On September 16, 2008, the $62.6 billion Reserve Primary Fund was under attack as investors were taking out money too fast. They worried that the Fund would go bankrupt due to its investments in Lehman Brothers. The next day, businesses pulled a record $140 billion out of money market accounts and moved the funds to Treasury bills, causing yields to drop to zero. Money market accounts had been considered one of the safest investments. To stem the panic, the U.S. Treasury Department agreed to insure money market funds for a year. The SEC banned short-selling financial stocks until October 2 to reduce volatility in the stock market.

The U.S. government bought these bad mortgages because banks were afraid to lend to each other. This fear caused Libor rates to be much higher than the fed funds rate and sent stock prices plummeting. Financial firms were unable to sell their debt, and without the ability to raise capital, these firms were in danger of going bankrupt, which is what happened to Lehman Brothers. It would have happened to the AIG and Bear Stearns without federal intervention.

Congress debated the pros and cons of such a massive intervention. Political leaders wanted to protect the taxpayer, but they also didn't want to let businesses off the hook for making bad decisions. However, most in Congress recognized the need to act swiftly to avoid a further financial meltdown. With banks afraid to disclose their bad debt, it became a case of fear feeding on fear-which would have led to a downgrade in their debt rating, a decline in their stock price, and an inability to raise capital. The rumors and resulting panic locked up the credit markets.

Alternative Options

When the bill was introduced, many legislators were against it and proposed other ideas. Here are some and their probable impacts:

Buy Mortgages

John McCain proposed having the government buy $300 billion in mortgages from homeowners who were in danger of foreclosing, which would have reduced the number of toxic mortgages on banks' balance sheets. It could have even helped stop falling housing prices by reducing foreclosures, but it didn't address the credit crisis, which was caused by banks being afraid to lend to each other and their consequent hoarding of cash.﻿﻿

Cut Taxes for Banks

The Republican Study Committee (RSC) proposed suspending the capital gains tax for two years, allowing banks to sell assets without being taxed. Unfortunately, it was losses on assets that were the issue, not gains. The RSC proposed transitioning Fannie Mae and Freddie Mac to private companies and stabilizing the dollar, but neither of those addressed the credit crisis. On the other hand, the RSC's proposal to suspend mark-to-market accounting would have alleviated bank write-down of assets sooner. The U.S. Financial Accounting Standards Board eased the rule in 2009.

Some suggested just letting the markets run their course. In that scenario, many businesses around the world would have likely shut down due to a lack of credit-creating a global depression. The large-scale unemployment could have led to riots or another Great Depression.

# data[].attributes.attachment_link.title
What Did the Bank Bailout Bill Really Do?

# data[].attributes.attachment_link.description
On October 3, 2008, President George W. Bush signed the $700 billion Emergency Economic Stabilization Act (EESA) of 2008 after Treasury Secretary Henry Paulson asked Congress to approve a bailout to buy mortgage-backed securities that were in danger of defaulting.

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https://www.thebalance.com/the-great-recession-of-2008-explanation-with-dates-4056832

2006:
-The Subprime Mortgage Crisis Caused the Recession
On November 17, 2006, the Commerce Department warned that October's new home permits were 28% lower than the year before. At this point, the mortgage crisis could have been prevented.  But the Bush administration and the Federal Reserve did not realize how grave those early warning signs were. They ignored declines in the inverted yield curve. Instead, they thought the strong money supply and low interest rates would restrict any problems faced by the real estate industry.

2007:
-The Fed Do insufficient to Prevent the Recession

In September, the Fed began lowering interest rates. By the end of the year, the Fed funds rate was 4.25%.56 But the Fed didn't drop rates far enough, or fast enough, to calm markets

2008:
-The Recession Began
-Fannie and Freddie Spiraled Downward
-The Stock Market Crashed
-$700 Billion Bank Bailout Bill

2009:
-The $787 Billion Stimulus Package to End the Recession
-The Dow hit its recession bottom.
It dropped to 6,547.05, a total decline of 53.8% from its peak close of 14,164.53.
-Making Home Affordable Launched
-Obama Asked Banks to Modify Loans
-Banks Weren't Lending

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The Great Recession began well before 2008. The first signs came in 2006 when housing prices began falling. By August 2007, the Federal Reserve responded to the subprime mortgage crisis by adding $24 billion in liquidity to the banking system. By October 2008, Congress approved a $700 billion bank bailout, now known as the Troubled Asset Relief Program. By February 2009, Obama proposed the $787 billion economic stimulus package, which helped avert a global depression. Here is an overview of the significant moments of the Great Recession of 2008.

Key Points

How the Subprime Mortgage Crisis Caused the Recession

In November 2006, the Department of Housing and Urban Development warned that new home building permits were 26% lower than the year before. At this point, the mortgage crisis could have been prevented. But the Bush administration and the Federal Reserve did not realize how grave those early warning signs were. They ignored declines in the inverted yield curve. Instead, they thought the strong money supply and low interest rates would restrict any problems faced by the real estate industry.

They didn't realize how reliant banks had become on derivatives, or contracts whose value is derived from another asset. Banks and hedge funds sold assets like mortgage-backed securities (MBS) to each other as investments. But they were backed by questionable mortgages.

These interest-only loans were offered to subprime, high-risk borrowers who were most likely to default on a loan. The banks offered them low interest rates. But these "too-good-to-be-true" loans reset to a much higher rate after a certain period. Home prices fell at the same time interest rates reset. Defaults on these loans caused the subprime mortgage crisis. When home prices started falling in 2007, it signaled a real estate crisis that was already in motion.

Essentially, banks had sold more mortgage-backed securities than what could be supported by good mortgages. But they felt safe because they also bought credit default swaps (CDS), which insured against the risk of defaults. But when the MBS market caved in, insurers did not have the capital to cover the CDS holders. As a result, insurance giant American International Group almost went belly-up before the federal government saved it.

Note

This financial catastrophe quickly spilled out of the confines of the housing scene and spread throughout the banking industry, bringing down financial behemoths with it. Among those deemed "too big to fail" were Lehman Brothers and Merrill Lynch. Because of this, the crisis spread globally.

2007: The Fed Didn't Do Enough to Prevent the Recession

On April 17, 2007, the Federal Reserve announced that the federal financial regulatory agencies that oversee lenders would encourage them to work with lenders to work out loan arrangements rather than foreclose. Alternatives to foreclosure included converting the loan to a fixed-rate mortgage and receiving credit counseling through the Center for Foreclosure Solutions. Banks that worked with borrowers in low-income areas could also receive Community Reinvestment Act benefits.

In September, the Fed began lowering interest rates. By the end of the year, the Fed funds rate was 4.25%. But the Fed didn't drop rates far enough, or fast enough, to calm markets.

The Recession Underway

July 2008: The Recession Began

The subprime crisis reached the entire economy by the third quarter of 2008 when GDP fell by 2.1%.

But for early observers, the first clue was in October 2006. Orders for durable goods were lower than they had been in 2005, foreshadowing a decline in housing production. Those orders also measure the health of manufacturing orders, a key indicator in the direction of national GDP.

August 2008: Fannie and Freddie Spiraled Downward

Mortgage giants Fannie Mae and Freddie Mac were fully succumbing to the subprime crisis in the summer of 2008. The failure of the government-backed companies that insured mortgages signaled that the bottom was dropping out. The Bush administration announced plans to take over Freddie and Fannie in order to prevent a full collapse.

Note

September 2008: The Stock Market Crashed

On Sept. 29, 2008, the stock market crashed. The Dow Jones Industrial Average fell 777.68 points in intra-day trading. Until 2018, it was the largest point drop in history. It plummeted because Congress rejected the bank bailout bill.

Although a stock market crash can cause a recession, in this case, it had already begun. But the crash of 2008 made a bad situation much, much worse.

Efforts Towards Recovery

October 2008: $700 Billion Bank Bailout Bill

On Oct. 3, 2008, Congress established the Troubled Asset Relief Program, which allowed the U.S. Treasury to bail out troubled banks. The Treasury Secretary lent $115 billion to banks by purchasing preferred stock.

It also increased the Federal Deposit Insurance Corporation limit for bank deposits to $250,000 per account and allowed the FDIC to tap federal funds as needed through 2009. That allayed any fears that the agency itself might go bankrupt.

February 2009: The $787 Billion Stimulus Package

On Feb. 17, 2009, Congress passed the American Recovery and Reinvestment Act. The $787 billion economic stimulus plan ended the recession. It granted $212 billion in tax cuts and $575 billion in outlays, including $311 billion for new projects such as health care, education, and infrastructure initiatives.

On Feb. 18, 2009, Obama announced a $75 billion plan to help stop foreclosures. The Homeowner Stability Initiative was designed to help 7 to 9 million homeowners before they got behind in their payments (most banks won't allow a loan modification until the borrower misses three payments). It subsidized banks that restructured or refinanced their mortgage. However, it wasn't enough to convince banks to change their policies.

Note

March 2009: Making Home Affordable Launched

Making Home Affordable was an initiative launched by the Obama Administration to help homeowners avoid foreclosure. The program generated more than 1.7 million loan modifications in its lifespan.

The Homeowner Affordable Refinance Program (HARP) was one of its programs. It was designed to stimulate the housing market by allowing up to two million credit-worthy homeowners who were upside-down in their homes to refinance and take advantage of lower mortgage rates. But banks only selected the best applicants.

The Role of the Banks in a Sluggish Recovery

August 2009: Obama Asked Banks to Modify Loans

By August, foreclosures kept mounting, dimming hopes of an economic recovery. Banks could have, but didn't, prevent foreclosures by modifying loans. That's because it would further hurt their bottom line. But record foreclosures (360,149 in July) only made things worse for them as well as American families. July's foreclosure rate was the highest since RealtyTrac, a real estate information firm, began keeping records in 2005. It was 32% higher than in 2008.

Foreclosures continued rising as more adjustable-rate mortgages came due at higher rates. More than half of foreclosures were from just four states: Arizona, California, Florida, and Illinois. California banks beefed up their foreclosure departments, expecting higher home losses.

The Obama administration asked banks to double loan modifications voluntarily by November 1.

October 2009: Banks Weren't Lending

In October 2009, unemployment peaked at 10%, the worst level since the 1982 recession. Almost 6 million jobs were lost in the 12 months prior to that. Employers were adding temporary workers as they grew too wary of the economy to add full-time employees. But the fields of health care and education continued to expand.

One reason the recovery was sluggish was that banks were not lending. Lending was down 15% from the nation's four biggest banks: Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo, according to The Huffington Post's analysis of federal data. Between April and October of 2009, these banks cut their commercial and industrial lending by $100 billion. Loans to small businesses fell sharply during the same period as well.

Lending from all banks surveyed showed the number of loans made was down 9% from October 2008. But the outstanding balance of all loans made went up 5%. This meant banks made larger loans to fewer recipients.

The banks said there were fewer qualified borrowers thanks to the recession. Businesses said the banks tightened their lending standards. But if you looked at the 18 months of potential foreclosures in the pipeline, it looked like banks were hoarding cash to prepare for future write-offs. In other words, banks were sitting on $1.1 trillion in government subsidies.

In December of 2009, Bank of America pledged to President Obama that it would increase lending to small and medium-sized businesses by $5 billion in 2010. But that was only after drastically slashing lending in 2009.

Why Not Let the Banks Go Bankrupt?

People are still angry about the $350 billion in taxpayer dollars that were used to bail out the banks. Many people feel that there was no oversight and that the banks just used the money for executive bonuses. In this case, people thought banks should not have been rescued for making bad decisions based on greed. The argument goes that, if we had just let the banks go bankrupt, the worthless assets would be written off. Other companies would purchase the good assets and the economy would be much stronger as a result. In other words, let laissez-faire capitalism do its thing.

In fact, that is what Former Treasury Secretary Hank Paulson attempted to do with Lehman Brothers in September. The result was a market panic. It created a run on the ultra-safe money market funds, which threatened to shut down cash flow to all businesses, large and small. In other words, the free market couldn't solve the problem without government help.

In fact, most of the government funds were used to create the assets that allowed the banks to write down about $1 trillion in losses. The other problem is that there were no "new companies," i.e. other banks that had the funds to purchase these banks. Even Citigroup-one of the banks that the government had hoped would bail out the other banks-required a bailout to keep going.

Note

Why Didn't Obama Do More To End the Recession?

President Obama was dealing with more than just the recession as he looked toward the midterm elections.

He launched sorely needed but sharply criticized healthcare reform. He also supported the Dodd-Frank Wall Street Reform Act. That and new Federal Reserve regulations were designed to prevent another banking collapse. They also made banking much more conservative. As a result, many banks didn't lend as much, because they were conserving capital to conform to regulations and write down bad debt. But bank lending was needed to spur the small business growth needed to create new jobs.

The Dangers of Derivatives

The cause of the meltdown was the deregulation of derivatives that was so complicated that even their originators didn't understand them. Banks became so quick to resell mortgages on the secondary market that they felt immune to the dangers of taking riskier and riskier mortgages. Other aggressive moves by banks to sell more collateralized debt obligations (CDOs) and corporations to sell more asset-backed commercial paper helped to push the economy toward a bubble. These derivatives were designed to increase liquidity in the economy, but that liquidity drove housing prices and debt to unmanageable levels.

How the Bailout Affects You

The Dodd-Frank Act stopped the bank credit panic, allowed LIBOR interest rates to return to normal, and made it possible for everyone to get loans. Without the credit market functioning, businesses were not able to get the capital they need to run their day-to-day business.

Without the bill, it would have been impossible for people to get credit applications approved for home mortgages and even car loans. In a few weeks, the lack of capital would have led to a shutdown of small businesses, which couldn't afford the high interest rates. Also, those whose mortgage rates reset would have seen their loan payments jump. This would have caused even more foreclosures. The Great Recession would have become a depression.

That gives us hope because we learned more about how the economy works and became smarter about managing it. Without that knowledge, we would be in much worse shape today.

Frequently Asked Questions (FAQs)

How long did the Great Recession last?

How did the amount of bank reserves change in the wake of the Great Recession?

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The Great Recession of 2008: What Happened, and When?

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The seeds of the Great Recession started in 2006 when housing prices began to fall. Here's an explanation of causes, effects, and solutions.

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https://www.britannica.com/topic/great-recession

Millions of people lost their homes, jobs, and savings, the poverty rate in the United States increased, from 12.5 percent in 2007 to more than 15 percent in 2010. In the opinion of some experts, a greater increase in poverty was averted only by federal legislation

http://ftp.iza.org/dp4934.pdf

Norway and Malta have experienced only a mild economic contraction and labour market impact, while others including Austria, Germany and the Netherlands have avoided a major deterioration in the labour market despite a greater fall in output.

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Great Recession, economic recession that was precipitated in the United States by the financial crisis of 2007-08 and quickly spread to other countries. Beginning in late 2007 and lasting until mid-2009, it was the longest and deepest economic downturn in many countries, including the United States, since the Great Depression (1929- c. 1939).

The financial crisis, a severe contraction of liquidity in global financial markets, began in 2007 as a result of the bursting of the U.S. housing bubble. From 2001 successive decreases in the prime rate (the interest rate that banks charge their "prime," or low-risk, customers) had enabled banks to issue mortgage loans at lower interest rates to millions of customers who normally would not have qualified for them ( see subprime mortgage; subprime lending), and the ensuing purchases greatly increased demand for new housing, pushing home prices ever higher. When interest rates finally began to climb in 2005, demand for housing, even among well-qualified borrowers, declined, causing home prices to fall. Partly because of the higher interest rates, most subprime borrowers, the great majority of whom held adjustable-rate mortgages (ARMs), could no longer afford their loan payments. Nor could they save themselves, as they formerly could, by borrowing against the increased value of their homes or by selling their homes at a profit. (Indeed, many borrowers, both prime and subprime, found themselves "underwater," meaning that they owed more on their mortgage loans than their homes were worth.) As the number of foreclosures increased, banks ceased lending to subprime customers, which further reduced demand and prices.

As the subprime mortgage market collapsed, many banks found themselves in serious trouble, because a significant portion of their assets had taken the form of subprime loans or bonds created from subprime loans together with less-risky forms of consumer debt ( see mortgage-backed security; MBS). In part because the underlying subprime loans in any given MBS were difficult to track, even for the institution that owned them, banks began to doubt each other's solvency, leading to an interbank credit freeze, which impaired the ability of any bank to extend credit even to financially healthy customers, including businesses. Accordingly, businesses were forced to reduce their expenses and investments, leading to widespread job losses, which predictably reduced demand for their products, because many of their former customers were now unemployed or underemployed. As the portfolios of even prestigious banks and investment firms were revealed to be largely fictional, based on nearly worthless ("toxic") assets, many such institutions applied for government bailouts, sought mergers with healthier firms, or declared bankruptcy. Other major businesses whose products were generally sold with consumer loans suffered significant losses. The car companies General Motors and Chrysler, for example, declared bankruptcy in 2009 and were forced to accept partial government ownership through bailout programs. During all of this, consumer confidence in the economy was understandably reduced, leading most Americans to curtail their spending in anticipation of harder times ahead, a trend that dealt another blow to business health. All these factors combined to produce and prolong a deep recession in the United States. From the beginning of the recession in December 2007 to its official end in June 2009, real gross domestic product (GDP)-i.e., GDP as adjusted for inflation or deflation-declined by 4.3 percent, and unemployment increased from 5 percent to 9.5 percent, peaking at 10 percent in October 2009.

As millions of people lost their homes, jobs, and savings, the poverty rate in the United States increased, from 12.5 percent in 2007 to more than 15 percent in 2010. In the opinion of some experts, a greater increase in poverty was averted only by federal legislation, the 2009 American Recovery and Reinvestment Act (ARRA), which provided funds to create and preserve jobs and to extend or expand unemployment insurance and other safety net programs, including food stamps. Notwithstanding those measures, during 2007-10 poverty among both children and young adults (those aged 18-24) reached about 22 percent, representing increases of 4 percent and 4.7 percent, respectively. Much wealth was lost as U.S. stock prices-represented by the S&P 500 index-fell by 57 percent between 2007 and 2009 (by 2013 the S&P had recovered that loss, and it soon greatly exceeded its 2007 peak). Altogether, between late 2007 and early 2009, American households lost an estimated $16 trillion in net worth; one quarter of households lost at least 75 percent of their net worth, and more than half lost at least 25 percent. Households headed by younger adults, particularly by persons born in the 1980s, lost the most wealth, measured as a percentage of what had been accumulated by earlier generations in similar age groups. They also took the longest time to recover, and some of them still had not recovered even 10 years after the end of the recession. In 2010 the wealth of the median household headed by a person born in the 1980s was nearly 25 percent below what earlier generations of the same age group had accumulated; the shortfall increased to 41 percent in 2013 and remained at more than 34 percent as late as 2016. Those setbacks led some economists to speak of a "lost generation" of young persons who, because of the Great Recession, would remain poorer than earlier generations for the rest of their lives.

Losses of wealth and speed of recovery also varied considerably by socioeconomic class prior to the downturn, with the wealthiest groups suffering the least (in percentage terms) and recovering the soonest. For such reasons, it is generally agreed that the Great Recession worsened inequality of wealth in the United States, which had already been significant. According to one study, during the first two years after the official end of the recession, from 2009 to 2011, the aggregate net worth of the richest 7 percent of households increased by 28 percent while that of the lower 93 percent declined by 4 percent. The richest 7 percent thus increased their share of the nation's total wealth from 56 percent to 63 percent. Another study found that between 2010 and 2013 the aggregate net worth of the richest 1 percent of Americans increased by 7.8 percent, representing an increase of 1.4 percent in their share of the nation's total wealth (from 33.9 percent to 35.3 percent).

As the financial crisis spread from the United States to other countries, particularly in western Europe (where several major banks had invested heavily in American MBSs), so too did the recession. Most industrialized countries experienced economic slowdowns of varying severity (notable exceptions were China, India, and Indonesia), and many responded with stimulus packages similar to the ARRA. In some countries the recession had serious political repercussions. In Iceland, which was particularly hard-hit by the financial crisis and suffered a severe recession, the government collapsed, and the country's three largest banks were nationalized. In Latvia, which, along with the other Baltic countries, was also affected by the financial crisis, the country's GDP shrank by more than 25 percent in 2008-09, and unemployment reached 22 percent during the same period. Meanwhile, Spain, Greece, Ireland, Italy, and Portugal suffered sovereign debt crises that required intervention by the European Union, the European Central Bank, and the International Monetary Fund (IMF) and resulted in the imposition of painful austerity measures. In all the countries affected by the Great Recession, recovery was slow and uneven, and the broader social consequences of the downturn-including, in the United States, lower fertility rates, historically high levels of student debt, and diminished job prospects among young adults-were expected to linger for many years.

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Great Recession | Causes, Effects, Statistics, & Facts

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Great Recession, economic recession that was precipitated in the U.S. by the financial crisis of 2007-08 and quickly spread to other countries. Lasting from late 2007 until mid-2009, it was the longest and deepest economic downturn in many countries, including the U.S., since the Great Depression (1929-c. 1939).

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http://ftp.iza.org/dp4934.pdf

-The search for higher yields, misperception of risk and lax financial regulation
-Bursting of the US housing bubble
-The massive surge in housing and equity prices
-The growing current account deficit and rising level of (private) debt.
-The exposure of lenders and investors was complicated by the unprecedented level of securitization of mortgages

Some developing countries have been hit hard, while others have been more resilient

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http://ftp.iza.org/dp4934.pdf

-Working time (hours worked)
-Number of workers
-Wages/non-wage benefits.

-Policymakers across the world held the view that monetary and financial policies alone could not cope with the global recession.

A UNDP study maintains that there are now 48 countries for which there are reliable data on fiscal stimulus packages. Collectively, the fiscal stimulus packages account for 3.9 per cent of world GDP (as measured in 2008) and 4.8 per cent of their national GDPs. 20 out of the 48 can be classified as developing countries.

Governments enacting fiscal stimulus packages should concentrate on spending measures rather than tax cuts.

Furthermore, within the category of spending measures, governments should focus on capital expenditure, such as
investments in employment-intensive infrastructure. This will yield higher dividends in terms  40 of the impact on output and jobs for any given size of fiscal expansion.

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https://en.wikipedia.org/wiki/Bitcoin

The cryptocurrency was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto. The currency began use in 2009 when its implementation was released as open-source software. Bitcoins are created as a reward for a process known as mining.

The value of one Bitcoin was $0 when it was first introduced in 2009.

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https://www.benzinga.com/money/is-bitcoin-a-good-investment/

The high liquidity associated with bitcoin makes it a great investment vessel if you're looking for short-term profit. Digital currencies may also be a long-term investment due to their high market demand. Lower inflation risk.

https://money.com/make-money-trading-crypto-difficulty/

-Example of a person who become rich through buying Bitcoin:
Erik Finman became a millionaire after investing $1,000 in bitcoin when he was 12. Glauber Contessoto invested all his savings in dogecoin on Feb. 5 and by mid-April, his investment was worth more than $1 million, he told CNBC Make It

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A collective insanity has sprouted around bitcoin over the last decade. It's hard to predict whether this cryptocurrency will become the global reserve currency or a store of value as widely accepted as gold. The thrill of riches or ruin leaves some investors wary, but others want to chase the chance for massive profits from investing in bitcoin.

Is bitcoin a good investment? Start with our guide to learn more and make your own judgment.

Simply Put: Is Investing in Bitcoin Risky?

Similar to any speculative investment, buying bitcoin carries risk. Since its inception, Bitcoin was the 1st digital asset to beget the current ecosystem of cryptos. For quite a while, it grew an underground following of investors who saw its future as a possible replacement to the physical monetary system. Now Bitcoin has become a household name as institutions and governments develop ways to serve their customers growing demand for exposure.

Similar to how the internet was once a speculative investment, Bitcoin today has received similar criticism. In 2021, El Salvador became the 1st country in the world to make Bitcoin a legal tender, and other countries look to follow suit. Bitcoins current adoption rate outpaces that of the internet's, with a user base roughly the size of the internet in 1997.

As the traditional finance world realizes Bitcoin's potential for disruption, they must choose either to adopt cryptocurrencies or face irrelevance. The personal decision to invest in bitcoin comes down to your appetite for risk and your perspective on the future of the interconnected human race.

Where to Invest in Bitcoin

Bitcoin is available from a multitude of centralized cryptocurrency exchanges. The safest exchanges are U.S. based, which also means you'll need to comply with the SEC's know your customer (KYC) guidelines. For tax purposes, making an exchange account will require inputting your personal information including your address and social security number. Once you've got this handy, you're ready to get started.

Here are the steps to invest in bitcoin:

1. Open an account with Coinbase or another exchange from the list below.

2. Connect a bank account and deposit funds into your exchange wallet.

3. Buy Bitcoin (BTC).

4. Buy a wallet (optional).

1. eToro

Trade popular cryptocurrencies, explore professionally managed portfolios and connect with traders. eToro currently supports the purchase and sale of 15 unique coins, including:

2. Coinbase

Coinbase makes it safe and simple for you to buy, sell and hold bitcoin. You can buy a portion of bitcoin with a $0 account minimum.

Pay for purchases conveniently using your debit card or by connecting your bank account. Owning bitcoin on this brokerage is as simple as creating an account, verifying your identity and buying your cryptos. Also, Coinbase has a program called Coinbase Earn that pays you to learn about cryptocurrencies. Coinbase Earn is a great way to add crypto to your portfolio without actually needing to invest your own money.

Take control of your bitcoin investment everywhere you go through the Coinbase mobile app. The brokerage allows you to hold onto your bitcoin, convert it into another crypto, spend it on expenses and transfer it to anyone, anywhere in the world.

3. BitcoinIRA

BitcoinIRA's proprietary platform enables you to self-trade crypto anytime so you can take action right when the market moves.

Here's how it works:

1. Create an account. Get your customized dashboard and digital wallet after you create an account. Fund your account, access live pricing and learn more with a knowledge base.

2. Transfer funds. Transfer your IRA in 3 easy steps. Simply tell us how much you want to invest, how you want to fund your account and your profile information. Most accounts will be ready to trade in just 3 to 5 days.

3. Start trading. Trade digital assets inside your self-directed retirement account using our proprietary platform. Buy, sell or swap anytime, anywhere by visiting the self-trading area within your dashboard.

Get started with BitcoinIRA.
Advantages of Bitcoin Investments

The overwhelming performance of bitcoin - as a currency and investment - has attracted traditional and institutional investors alike. Bitcoin as an investment tool provides you with the following advantages over traditional investments.

Liquidity. Bitcoin is arguably 1 of the most liquid investment assets due to the worldwide establishment of trading platforms, exchanges and online brokerages. You can easily trade bitcoin for cash or assets like gold instantly with incredibly low fees. The high liquidity associated with bitcoin makes it a great investment vessel if you're looking for short-term profit. Digital currencies may also be a long-term investment due to their high market demand.

Lower inflation risk. Unlike world currencies - which are regulated by their governments - bitcoin is immune to inflation. The blockchain system is infinite and there's no need to worry about your cryptos losing their value.

New opportunities. Bitcoin and cryptocurrency trading is relatively young - new coins are becoming mainstream on a daily basis. This newness brings unpredictable swings in price and volatility, which may create opportunities for massive gains.

Minimalistic trading. Stock trading requires you to hold a certificate or license. You must also go through a broker to trade a company's shares. But bitcoin trading is minimalistic: simply buy or sell bitcoin from exchanges and place them in your wallet. Bitcoin transactions are also instant - unlike the settlement of stock trading orders, which could take days or weeks.

Disadvantages of Bitcoin Investments

Bitcoin may be the future of monetary exchange, but it is equally important that you are aware of the concerns surrounding cryptocurrency investing. Here are some serious risks associated with bitcoin investments.

Volatility. The price of bitcoin is always rippling back and forth. If you happened to buy bitcoin on December 17, 2017, the price was $20,000. Weeks later, you couldn't sell your investment for more than $7,051. While you'd be doing great now in 2021, holding for years at a time is not a viable option for all investors.

Threat of online hacking. While using a trusted exchange like Coinbase or Gemini will do wonders to lower your risk of being hacked, the only way you can be totally secure is by taking custody of your own private key. This can be done with a crypto wallet like the Ledger Nano X or Coinbase Wallet.

Can Bitcoin be Exchanged for Real Money?

Bitcoin can be converted to cash in a couple of different ways. You can sell bitcoin on a cryptocurrency exchange like Coinbase or Gemini. The cash will be deposited directly into your bank account.

Bitcoin ATMs are expensive, but if there is one near you, you can exchange your bitcoin for cash there. However, these ATMs often charge hefty fees, so you're most likely better off using an exchange.

Is Bitcoin the Future, Really?

With institutions adding Bitcoin to their balance sheets and El Salvador officially making Bitcoin legal tender, it's looking like Bitcoin will be the future of currency, or at least an accepted store of value. However, with so much volatility in the market, risk-averse investors are still hesitant to buy Bitcoin, much less any other cryptocurrency.

Since Bitcoin isn't controlled by a central entity, its monetary policy is much more sound than any government. Ark Invest CEO Cathie Wood describes Bitcoin as a "rules based monetary system", as Bitcoin's monetary policy is set by the parameters of the code. With governments printing out more money than ever before in light of the pandemic, investors are looking for alternative investments to hedge against inflation. Many are turning to Bitcoin to do so, facilitating adoption of cryptocurrency over the long-term.

More on Cryptocurrency

Take a look at more cryptocurrency content and learn about the space or start investing!
See More: BITCOIN PRICE TODAY
Benzinga crafted a specific methodology to rank cryptocurrency exchanges and tools. We prioritized platforms based on offerings, pricing and promotions, customer service, mobile app, user experience and benefits, and security. To see a comprehensive breakdown of our methodology, please visit see our Cryptocurrency Methodology page.

Gemini builds crypto products to help you buy, sell, and store your bitcoin and cryptocurrency. You can buy bitcoin and crypto instantly and access all the tools you need to understand the crypto market and start investing, all through one clear, attractive interface. Gemini Crypto Platform offers excellent account management options. You can manage your account at a glance, view your account balance 24-hour changes and percent changes. Get started with Gemini now.

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Is Bitcoin a good investment in 2021? * Benzinga Crypto

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A collective insanity has sprouted around bitcoin over the last decade. It's hard to predict whether this cryptocurrency will become the global reserve currency or a store of value as widely accepted as gold. The thrill of riches or ruin leaves some investors wary, but others want to chase the chance for massive profits from investing in bitcoin.

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https://www.igi-global.com/chapter/impact-of-bitcoin-on-the-world-economy/238365

The ever increasing popularity of Bitcoin is somehow looking as challenging to this legendary system

-Governments of many countries are directly rejecting the concept of cryptocurrency or Bitcoins for their nation’s economy while some are getting ready to accept this global financial challenge.

-Banking sector is one of the first financial institutions to be affected by the emergence of cryptocurrency, especially from the most popular cryptocurrency Bitcoin.

-Its presence over the world stock exchanges with high value gains many times. Though some countries including a big economy China have ban the Bitcoin because of its high volatile nature

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Impact of Bitcoin on the World Economy: Opportunities and Challenges

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Bitcoin has brought a revolution in digital market. Bitcoin doesn't follow any supervisory body or central authority to control it. Unlike any country's currency, it is not supervised by a government. It flows on networks and is managed by decentralized actors. Like any other innovation, bitcoin als...

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https://www.brookings.edu/blog/up-front/2013/03/11/earthquake-tsunami-meltdown-the-triple-disasters-impact-on-japan-impact-on-the-world/

138,000 buildings were destroyed and $360 billion in economic losses were incurred

The agriculture, forestry, and fisheries sectors were affected

The economic, political, and social consequences of the Triple Disaster have changed Japan in fundamental ways. The uprooting of entire communities and the large infrastructural losses produced immediate disruptions in Japan’s extensive supply networks. These in turn caused dramatic drops in industrial production that imposed a toll not only on Japan’s economy, but also on the many other countries linked through these production networks

A large citizen movement calling for the abolition of nuclear power in Japan developed in the aftermath of the Fukushima disaster. The enactment of more exacting safety standards and the development of new patterns of government regulation and monitoring of the nuclear industry have emerged as key topics in the national political debate.

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Earthquake, Tsunami, Meltdown - The Triple Disaster's Impact on Japan, Impact on the World

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On the two-year anniversary of Japan's devastating earthquake, tsunami and nuclear meltdown, Elizabeth Ferris and Mireya Solís reflect on the most expensive disaster in human history and its effects on Japan's economy and citizens, and what the rest of the world can learn from that tragedy.

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https://time.com/2950961/obamacare-health-care-obama/

On November 14, 2013, President Obama announced the administration's intention to allow people whose insurance plans had been canceled during this time to re-enroll in their plans. Insurers would be allowed to continue to offer these plans until 2015. On December 19, 2013, the administration announced that those whose plans were canceled under the law met the Health and Human Services Department's hardship exemption"from penalties under the individual mandate. The stated exemption covers those who "experienced financial or domestic circumstances, including an unexpected natural or human-caused event, such that he or she had a significant, unexpected increase in essential expenses that prevented him or her from obtaining coverage under a qualified health plan." On March 5, 2014, the administration delayed the requirement that health plans come into compliance for a second time, allowing insurers to continue offering these plans until 2017.

7.8 million people under 26—who are allowed to be covered as dependents on their parents’ plans—have enrolled. They also report that 8 million people were enrolled in coverage via new health insurance marketplaces and five million purchased coverage directly from insurers

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20 Million Americans Gained Coverage Under the Affordable Care Act

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A new report estimates millions of Americans have enrolled in health insurance as of this Spring

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https://www.cnbc.com/2019/12/29/how-the-affordable-care-act-transformed-the-us-health-care-system.html

Many Americans can’t afford to take care of themselves. The average employer-sponsored insurance has annual family premiums over $20,000. One study found that more than 40% of Americans are struggling with medical bills or debt, and health-care expenses continue to be a leading cause of bankruptcy.

“While the ACA succeeded in creating a situation in which nearly the entire population either has, or can get, health insurance, it did nothing to reduce the underlying cost of medical care,” said Ed Haislmaier, a health-care policy expert at the Heritage Foundation.

https://media4.manhattan-institute.org/sites/default/files/IB-CM-0616.pdf

Since 2012–13, economic growth has missed its historical
average by approximately 0.6 percent per year, reducing GDP by $170 billion in 2015 and suggesting that the annual loss could top $300 billion by the end of the decade.

The employer penalty, which has been in effect only
since last year, is as costly as a $275 monthly salary
for each full-time employee at a large business that
does not offer ACA-approved health insurance.7

◆ Small businesses are discouraged from becoming
large businesses. By hiring one more full-time
employee, a business at the threshold between small
and large (about 50 employees) would, in addition to
that employee’s salary and benefits, add $5,500 to
its monthly penalty expenses. This extra expense, in
many cases, will exceed the salary itself.

◆ Most full-time employees and their families are, by
virtue of their employment status, prohibited from
receiving the new subsidies. This is a major new
disincentive for working full-time, and it will grow
over time as households and employers become
familiar with ACA health plans and how to use them to
their advantage.

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Recently, a federal court decided the central provision of the Affordable Care Act requiring all Americans to be insured or face a tax penalty is unconstitutional. Now, the entire law may be in limbo. Congress just repealed three taxes meant to raise revenue for the ACA.

In 2012, the Supreme Court ruled that Congress had exceeded its constitutional power by requiring states to expand Medicaid - one of the main ways the law aimed to increase coverage rates. At least 14 states have refused to expand their Medicaid program since.

"Changes to the ACA have come from many different quarters, including Congress, the administration, state governments and the federal judiciary system," said Christine Eibner, a senior economist at the RAND Corporation, a nonprofit think tank. "Many of these changes have reduced the law's reach in terms of expanding coverage."

Indeed, some 28 million Americans are still uninsured.

Even so, the Affordable Care Act has made our health-care system unrecognizable from a decade ago.

"I'd say, in many ways, the goals have been closer to met than not," said Gregory Stevens, associate professor of clinical family medicine at the University of Southern California.

The Affordable Care Act established health insurance marketplaces, including Healthcare.gov and state exchanges at which people could sign up for coverage and potentially qualify for federal subsidies. Despite initial spikes in prices on the marketplace, premiums have grown more affordable over the last couple of years.

"The tax credits have proven to be a very stabilizing force in the individual market," Eibner said.

More than 20 million Americans gained health insurance under the ACA. Black Americans, children and small-business owners have especially benefited.

Thirty-seven states have expanded Medicaid, deepening their pool of eligible residents to those who live at or below 138% of the federal poverty level. As a result of the increased access to health care, it's estimated that more than 19,000 lives have been saved.

The Medicaid expansion is popular with voters. After Louisiana Gov. John Bel Edwards, a Democrat, won reelection in November, his lead pollster told The Washington Post that "no single issue was more important than the Medicaid expansion."

More than 90% of the expenses states pick up under their Medicaid expansion are reimbursed by the federal government. The Medicaid expansion in Connecticut has reduced the state's per-person spending on the program by nearly 6%, even while it brought on an additional 200,000 people.

That math has led even red states that criticized the Affordable Care Act to eventually adopt it, Stevens said. "It was increasingly tough to leave federal money on the table," he said.

There are other parts of the ACA with bipartisan support, including prohibiting insurers from denying coverage or charging more to people with preexisting conditions. More than 1 in 4 Americans report having a preexisting condition such as asthma or high blood pressure.

"Many key provisions of the Affordable Care Act remain because they are so popular with voters," said Summer Johnson McGee, the dean of the School of Health Sciences at the University of New Haven in Connecticut.

Other powerful changes of the Affordable Care Act don't fit neatly into sound bites.

The law prohibited health insurers from including lifetime and annual caps in their plans. In the past, the government estimates that more than 20,000 people hit those limits each year.

"It was horrible," said Laurel Lucia, director of the Health Care Program at the University of California Berkeley's Center for Labor Research and Education. "Just when you've been hit with a really serious health condition, you're not covered fully."

The Affordable Care Act also banned insurers from charging rates based on gender. Prior to its passage, one study found that young women were charged up to 45% more than young men for their health insurance.

Under the ACA, Medicare stopped reimbursing hospitals for the treatment of hospital-acquired infections. "Prior to this, if you picked up an infection, the hospital earned more money," Stevens said. As a result, the number of such infections have plummeted and 125,000 fewer deaths have occurred.

In states where Medicaid was expanded, there's been a 6% increase in the number of early-stage cancer diagnoses, said Aparna Soni, a health economist at American University.

"Early diagnosis of cancer increases the probability of successful treatment and can lead to fewer cancer deaths, better outcomes for patients and lower costs of treatment," Soni said.

Yet there are problems - old and new.

Health-care spending still makes up nearly a fifth of the country's gross domestic product. "The ACA, in the last 10 years, has largely failed on reducing overall spending," Johnson McGee said.

Many Americans can't afford to take care of themselves. The average employer-sponsored insurance has annual family premiums over $20,000. One study found that more than 40% of Americans are struggling with medical bills or debt, and health-care expenses continue to be a leading cause of bankruptcy.

"While the ACA succeeded in creating a situation in which nearly the entire population either has, or can get, health insurance, it did nothing to reduce the underlying cost of medical care," said Ed Haislmaier, a health-care policy expert at the Heritage Foundation.

The Trump administration has been hostile toward the Affordable Care Act.

The overhaul of the tax code in 2017 repealed the individual mandate penalty. That central provision of the Affordable Care Act required every American to sign up for health insurance or face a tax penalty. A family of four could pay more than $13,000 for going uninsured. The administration has also slashed the Affordable Care Act's marketing budget by 90%. Advocates say it's now harder for people to learn about their health insurance options.

These changes are likely among the reasons 400,000 fewer people signed up for health insurance on the marketplace in 2019 than in 2018. Between 2017 and 2018, the number of uninsured children swelled by 100,000.

Since more than a dozen states continue to refuse to adopt the Affordable Care Act's Medicaid expansion, 2.5 million people who would have been eligible remain uninsured. In Texas, one of the states that hasn't expanded Medicaid, nearly 1 in 5 people live without health insurance.

Meanwhile, it could become harder to qualify for Medicaid in some places.

Some 10 states are in the process of trying to impose work requirements for their Medicaid benefits. The new qualifications could lead to 800,000 Americans losing their health coverage.

"There's a lot of people who have health problems that prevent them from working," said Linda Jordan, a public benefits lawyer at the Center for Civil Justice in Michigan. Starting in January, many Medicaid recipients in Michigan will have to show at least 80 hours a month of workforce engagement to maintain their coverage.

Other states, meanwhile, have fully adopted the Affordable Care Act - and gone further to cover their residents.

In 2020, California will become the first state to offer state subsidies to people who earn too much to qualify for federal tax credits on the health-care marketplace. For example, an individual earning $70,000 a year and a family of four making $150,000 could qualify for the state relief.

The Affordable Care Act required insurers to cover dependents until their 26th birthday. Yet in New Jersey, some dependent, unmarried adults are eligible to stay on their parents' plan until they're 31.

And while the federal government no longer fines the uninsured, California, New Jersey, Rhode Island, Vermont, Massachusetts and Washington, D.C., still penalize their uncovered residents.

Washington state signed into law this year a public option for health insurance. Two front-runners for the Democratic presidential nomination - Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass. - are campaigning on "Medicare for All." And today, 6 in 10 Americans believe it's the government's responsibility to make sure all Americans have health-care coverage.

Not long ago, Lucia said, such developments would be unthinkable.

"I think the Affordable Care Act has been a game changer in terms of public support for health care as a right," she said.
More from Personal Finance:
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Congress approves major changes to retirement saving

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patient protection and affordable care act

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How the Affordable Care Act transformed our health-care system

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Recently, a federal court decided the central provision of the Affordable Care Act requiring all Americans to be insured or face a tax penalty is unconstitutional. Now, the entire law may be in limbo. Congress just repealed three taxes meant to raise revenue for the ACA.

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https://en.wikipedia.org/wiki/Greek_government-debt_crisis

The Greek crisis was triggered by the turmoil of the Great Recession, which lead the budget deficits of several Western nations to reach or exceed 10% of GDP. Consequently, Greece was "punished" by the markets which increased borrowing rates, making it impossible for the country to finance its debt since early 2010.

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Early 2009 - Late 2018 (10 years)[1][2][3]

GDP

200.29 billion (2017)

GDP rank

51 (nominal per World Bank 2017)

23,027.41 (2017)

47 (per World Bank 2017)

$372 billion as of September 2019[4]

All values, unless otherwise stated, are in US dollars.

Greece faced a sovereign debt crisis in the aftermath of the financial crisis of 2007-2008. Widely known in the country as The Crisis ( Greek: Η Κρίση, I Krísi), it reached the populace as a series of sudden reforms and austerity measures that led to impoverishment and loss of income and property, as well as a small-scale humanitarian crisis. In all, the Greek economy suffered the longest recession of any advanced mixed economy to date. As a result, the Greek political system has been upended, social exclusion increased, and hundreds of thousands of well-educated Greeks have left the country.

The Greek crisis started in late 2009, triggered by the turmoil of the world-wide Great Recession, structural weaknesses in the Greek economy, and lack of monetary policy flexibility as a member of the Eurozone. The crisis included revelations that previous data on government debt levels and deficits had been underreported by the Greek government: the official forecast for the 2009 budget deficit was less than half the final value as calculated in 2010, while after revisions according to Eurostat methodology, the 2009 government debt was finally raised from $269.3bn to $299.7bn, i.e. about 11% higher than previously reported.

The crisis led to a loss of confidence in the Greek economy, indicated by a widening of bond yield spreads and rising cost of risk insurance on credit default swaps compared to the other Eurozone countries, particularly Germany. The government enacted 12 rounds of tax increases, spending cuts, and reforms from 2010 to 2016, which at times triggered local riots and nationwide protests. Despite these efforts, the country required bailout loans in 2010, 2012, and 2015 from the International Monetary Fund, Eurogroup, and the European Central Bank, and negotiated a 50% " haircut" on debt owed to private banks in 2011, which amounted to a €100bn debt relief (a value effectively reduced due to bank recapitalisation and other resulting needs).

After a popular referendum which rejected further austerity measures required for the third bailout, and after closure of banks across the country (which lasted for several weeks), on 30 June 2015, Greece became the first developed country to fail to make an IMF loan repayment on time (the payment was made with a 20-day delay). At that time, debt levels stood at €323bn or some €30,000 per capita, little changed since the beginning of the crisis and at a per capita value below the OECD average, but high as a percentage of the respective GDP.

Between 2009 and 2017, the Greek government debt rose from €300bn to €318bn. However, during the same period the Greek debt-to-GDP ratio rose up from 127% to 179% due to the severe GDP drop during the handling of the crisis.

Greece, like other European nations, had faced debt crises in the 19th century, as well as a similar crisis in 1932 during the Great Depression. While economists Carmen Reinhart and Kenneth Rogoff wrote that "from 1800 until well after World War II, Greece found itself virtually in continual default", (referring to a period which included Greece's war of independence, two wars with the Ottoman Empire, two Balkan wars, two World Wars, and a Civil War) Greece recorded fewer cases of default than Spain or Portugal in the aforementioned period (in reality starting from 1830, as this was the year of Greece's independence). Actually, during the 20th century, Greece enjoyed one of the highest GDP growth rates in the world and average Greek government debt-to-GDP from 1909 to 2008 (a century until the eve of the debt crisis) was lower than that of the UK, Canada or France. During the 30-year period immediately prior to its entrance into the European Economic Community in 1981, the Greek government's debt-to-GDP ratio averaged only 19.8%. Indeed, accession to the EEC (and later the European Union) was predicated on keeping the debt-to-GDP well below the 60% level, and certain members watched this figure closely.

Between 1981 and 1993, Greece's debt-to-GDP ratio steadily rose, surpassing the average of what is today the Eurozone in the mid-1980s. For the next 15 years, from 1993 to 2007, Greece's government debt-to-GDP ratio remained roughly unchanged (not affected by the 2004 Athens Olympics), averaging 102%; this figure was lower than that of Italy (107%) and Belgium (110%) during the same 15-year period, and comparable to that for the U.S. or the OECD average in 2017. During the latter period, the country's annual budget deficit usually exceeded 3% of GDP, but its effect on the debt-to GDP ratio was counterbalanced by high GDP growth rates. The debt-to GDP values for 2006 and 2007 (about 105%) were established after audits resulted in corrections of up to 10 percentage points for the particular years. These corrections, although altering the debt level by a maximum of about 10%, resulted in a popular notion that "Greece was previously hiding its debt".

A trade deficit means that a country is consuming more than it produces, which requires borrowing/direct investment from other countries. Both the Greek trade deficit and budget deficit rose from below 5% of GDP in 1999 to peak around 15% of GDP in the 2008-2009 periods. One driver of the investment inflow was Greece's membership in the EU and the Eurozone. Greece was perceived as a higher credit risk alone than it was as a member of the Eurozone, which implied that investors felt the EU would bring discipline to its finances and support Greece in the event of problems.

As the Great Recession spread to Europe, the amount of funds lent from the European core countries (e.g. Germany) to the peripheral countries such as Greece began to decline. Reports in 2009 of Greek fiscal mismanagement and deception increased borrowing costs; the combination meant Greece could no longer borrow to finance its trade and budget deficits at an affordable cost.

A country facing a ' sudden stop' in private investment and a high (local currency) debt load typically allows its currency to depreciate to encourage investment and to pay back the debt in devalued currency. This was not possible while Greece remained in the euro. "However, the sudden stop has not prompted the European periphery countries to move toward devaluation by abandoning the euro, in part because capital transfers from euro-area partners have allowed them to finance current account deficits". In addition, to become more competitive, Greek wages fell nearly 20% from mid-2010 to 2014, a form of deflation. This significantly reduced income and GDP, resulting in a severe recession, decline in tax receipts and a significant rise in the debt-to-GDP ratio. Unemployment reached nearly 25%, from below 10% in 2003. Significant government spending cuts helped the Greek government return to a primary budget surplus by 2014 (collecting more revenue than it paid out, excluding interest).

Regarding external factors, the Greek crisis was triggered by the Great Recession, which lead the budget deficits of several Western nations to reach or exceed 10% of GDP. In the case of Greece, the high budget deficit (which, after several corrections, was revealed that it had been allowed to reach 10.2% and 15.1% of GDP in 2008 and 2009, respectively) was coupled with a high public debt to GDP ratio (which, until then, was relatively stable for several years, at just above 100% of GDP- as calculated after all corrections). Thus, the country appeared to lose control of its public debt to GDP ratio, which already reached 127% of GDP in 2009. In contrast, Italy was able (despite the crisis) to keep its 2009 budget deficit at 5.1% of GDP, which was crucial, given that it had a public debt to GDP ratio comparable to Greece's. In addition, being a member of the Eurozone, Greece had essentially no autonomous monetary policy flexibility.

Finally, there was an effect of controversies about Greek statistics (due the aforementioned drastic budget deficit revisions which led to an increase in the calculated value of the Greek public debt by about 10%, i.e., public debt to GDP ratio of about 100% until 2007), while there have been arguments about a possible effect of media reports. Consequently, Greece was "punished" by the markets which increased borrowing rates, making it impossible for the country to finance its debt since early 2010.

There have been arguments regarding the country's poor macroeconomic handling between 2001 and 2009, including the significant reliance of the country's economic growth to vulnerable factors such as tourism.

In January 2010, the Greek Ministry of Finance published Stability and Growth Program 2010. The report listed five main causes, poor GDP growth, government debt and deficits, budget compliance and data credibility. Causes found by others included excess government spending, current account deficits, tax avoidance and tax evasion.

The global financial crisis had a particularly large negative impact on GDP growth rates in Greece. Two of the country's largest earners, tourism and shipping were badly affected by the downturn, with revenues falling 15% in 2009.

Fiscal imbalances developed from 2004 to 2009: "output increased in nominal terms by 40%, while central government primary expenditures increased by 87% against an increase of only 31% in tax revenues." The Ministry intended to implement real expenditure cuts that would allow expenditures to grow 3.8% from 2009 to 2013, well below expected inflation at 6.9%. Overall revenues were expected to grow 31.5% from 2009 to 2013, secured by new, higher taxes and by a major reform of the ineffective tax collection system. The deficit needed to decline to a level compatible with a declining debt-to-GDP ratio.

The debt increased in 2009 due to the higher-than-expected government deficit and higher debt-service costs. The Greek government assessed that structural economic reforms would be insufficient, as the debt would still increase to an unsustainable level before the positive results of reforms could be achieved. In addition to structural reforms, permanent and temporary austerity measures (with a size relative to GDP of 4.0% in 2010, 3.1% in 2011, 2.8% in 2012 and 0.8% in 2013) were needed. Reforms and austerity measures, in combination with an expected return of positive economic growth in 2011, would reduce the baseline deficit from €30.6 billion in 2009 to €5.7 billion in 2013, while the debt/GDP ratio would stabilize at 120% in 2010-2011 and decline in 2012 and 2013.

After 1993, the debt-to-GDP ratio remained above 94%. The crisis caused the debt level to exceed the maximum sustainable level, defined by IMF economists to be 120%. According to the report "The Economic Adjustment Programme for Greece" published by the EU Commission in October 2011, the debt level was expected to reach 198% in 2012, if the proposed debt restructure agreement was not implemented.

Budget compliance was acknowledged to need improvement. For 2009 it was found to be "a lot worse than normal, due to economic control being more lax in a year with political elections". The government wanted to strengthen the monitoring system in 2010, making it possible to track revenues and expenses, at both national and local levels.

Problems with unreliable data had existed since Greece applied for Euro membership in 1999. In the five years from 2005 to 2009, Eurostat noted reservations about Greek fiscal data in five semiannual assessments of the quality of EU member states' public finance statistics. In its January 2010 report on Greek Government Deficit and Debt Statistics, the European Commission/Eurostat wrote (page 28): "On five occasions since 2004 reservations have been expressed by Eurostat on the Greek data in the biannual press release on deficit and debt data. When the Greek EDP data have been published without reservations, this has been the result of Eurostat interventions before or during the notification period in order to correct mistakes or inappropriate recording, with the result of increasing the notified deficit." Previously reported figures were consistently revised down. The misreported data made it impossible to predict GDP growth, deficit and debt. By the end of each year, all were below estimates. Data problems had been evident over time in several other countries, but in the case of Greece, the problems were so persistent and so severe that the European Commission/Eurostat wrote in its January 2010 Report on Greek Government Deficit and Debt Statistics (page 3): "Revisions of this magnitude in the estimated past government deficit ratios have been extremely rare in the other EU Member States, but have taken place for Greece on several occasions. These most recent revisions are an illustration of the lack of quality of the Greek fiscal statistics (and of macroeconomic statistics in general) and show that the progress in the compilation of fiscal statistics in Greece, and the intense scrutiny of the Greek fiscal data by Eurostat since 2004 (including 10 EDP visits and 5 reservations on the notified data), have not sufficed to bring the quality of Greek fiscal data to the level reached by other EU Member States." And the same report further noted (page 7): "The partners in the ESS [European Statistical System] are supposed to cooperate in good faith. Deliberate misreporting or fraud is not foreseen in the regulation."

In April 2010, in the context of the semiannual notification of deficit and debt statistics under the EU's Excessive Deficit Procedure, the Greek government deficit for years 2006-2008 was revised upward by about 1.5-2 percentage points for each year and the deficit for 2009 was estimated for the first time at 13.6%, the second highest in the EU relative to GDP behind Ireland at 14.3% and the United Kingdom third at 11.5%. Greek government debt for 2009 was estimated at 115.1% of GDP, which was the second highest in the EU after Italy's 115.8%. Yet, these deficit and debt statistics reported by Greece were again published with reservation by Eurostat, "due to uncertainties on the surplus of social security funds for 2009, on the classification of some public entities and on the recording of off-market swaps."

Greece had budget surpluses from 1960 to 1973, but thereafter it had budget deficits. From 1974 to 1980 the government had budget deficits below 3% of GDP, while 1981-2013 deficits were above 3%.

An editorial published by Kathimerini claimed that after the removal of the right-wing military junta in 1974, Greek governments wanted to bring left-leaning Greeks into the economic mainstream and so ran large deficits to finance military expenditures, public sector jobs, pensions and other social benefits.

In 2008, Greece was the largest importer of conventional weapons in Europe and its military spending was the highest in the European Union relative to the country's GDP, reaching twice the European average. Even in 2013, Greece had the second-biggest defense spending in NATO as a percentage of GDP, after the US.

Pre-Euro, currency devaluation helped to finance Greek government borrowing. Thereafter this tool disappeared. Greece was able to continue borrowing because of the lower interest rates for Euro bonds, in combination with strong GDP growth.

Economist Paul Krugman wrote, "What we're basically looking at ... is a balance of payments problem, in which capital flooded south after the creation of the euro, leading to overvaluation in southern Europe" and "In truth, this has never been a fiscal crisis at its root; it has always been a balance of payments crisis that manifests itself in part in budget problems, which have then been pushed onto the center of the stage by ideology."

The translation of trade deficits to budget deficits works through sectoral balances. Greece ran current account (trade) deficits averaging 9.1% GDP from 2000 to 2011. By definition, a trade deficit requires capital inflow (mainly borrowing) to fund; this is referred to as a capital surplus or foreign financial surplus.

Before the crisis, Greece was one of EU's worst performers according to Transparency International's Corruption Perception Index (see table). At some time during the culmination of the crisis, it temporarily became the worst performer. One bailout condition was to implement an anti-corruption strategy; by 2017 the situation had improved, but the respective score remained one of the worst in the EU.

The ability to pay its debts depends greatly on the amount of tax the government is able to collect. In Greece, tax receipts were consistently below the expected level. Data for 2012 indicated that the Greek "shadow economy" or "underground economy", from which little or no tax was collected, was a full 24.3% of GDP - compared with 28.6% for Estonia, 26.5% for Latvia, 21.6% for Italy, 17.1% for Belgium, 14.7% for Sweden, 13.7% for Finland, and 13.5% for Germany. (The situation had improved for Greece, along with most EU countries, by 2017). Given that tax evasion is correlated with the percentage of working population that is self-employed, the result was predictable in Greece, where in 2013 the percentage of self-employed workers was more than double the EU average.

A mid-2017 report indicated Greeks were being "taxed to the hilt" and many believed that the risk of penalties for tax evasion were less serious than the risk of bankruptcy. One method of evasion that was continuing was the so-called "black market" or "grey economy" or "underground economy": work is done for cash payment which is not declared as income; as well, VAT is not collected and remitted. A January 2017 report by the DiaNEOsis think-tank indicated that unpaid taxes in Greece at the time totaled approximately 95 billion euros, up from 76 billion euros in 2015, much of it was expected to be uncollectable. The same study estimated that the loss to the government as a result of tax evasion was between 6% and 9% of the country's GDP, or roughly between 11 billion and 16 billion euros per annum.

Actions to reduce tax evasion

Following similar actions by the United Kingdom and Germany, the Greek government was in talks with Switzerland in 2011, to try to force Swiss banks to reveal information on the bank accounts of Greek citizens. The Ministry of Finance stated that Greeks with Swiss bank accounts would be required either to pay a tax or to reveal information such as the identity of the bank account holder to the Greek internal revenue services. The Greek and Swiss governments hoped to reach a deal on the matter by the end of 2011.

The solution demanded by Greece had still not been effected as of 2015; when there was an estimated €80 billion of taxes evaded on Swiss bank accounts. But by then the Greek and Swiss governments were seriously negotiating a tax treaty to address this issue. On 1 March 2016 Switzerland ratified an agreement creating a new tax transparency law to fight tax evasion more effectively. Starting in 2018, banks in both Greece and Switzerland were to exchange information about the bank accounts of citizens of the other country, to minimize the possibility of hiding untaxed income.

In 2016 and 2017, the government was encouraging the use of credit cards and debit cards to pay for goods and services in order to reduce cash only payments. By January 2017, taxpayers were only granted tax allowances or deductions when payments were made electronically, with a "paper trail" of the transactions that the government could easily audit. This was expected to reduce the problem of businesses taking payments but not issuing an invoice. This tactic had been used by various companies to avoid payment of VAT as well as income tax.

In April, after publication of GDP data which showed an intermittent period of recession starting in 2007, credit rating agencies then downgraded Greek bonds to junk status in late April 2010. This froze private capital markets, and put Greece in danger of sovereign default without a bailout.

On 2 May, the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) (the Troika) launched a €110 billion bailout loan to rescue Greece from sovereign default and cover its financial needs through June 2013, conditional on implementation of austerity measures, structural reforms and privatization of government assets. The bailout loans were mainly used to pay for the maturing bonds, but also to finance the continued yearly budget deficits.

Fraudulent statistics, revisions and controversies

To keep within the monetary union guidelines, the government of Greece for many years simply misreported economic statistics. The areas in which Greece's deficit and debt statistics did not follow common European Union rules spanned about a dozen different areas outlined and explained in two European Commission/Eurostat reports, from January 2010 (including its very detailed and candid annex) and from November 2010.

For example, at the beginning of 2010, it was discovered that Goldman Sachs and other banks had arranged financial transactions involving the use of derivatives to reduce the Greek government's nominal foreign currency debt, in a manner that the banks claim was consistent with EU debt reporting rules, but which others have argued were contrary at the very least to the spirit of the reporting rules of such instruments. Christoforos Sardelis, former head of Greece's Public Debt Management Agency, said that the country did not understand what it was buying. He also said he learned that "other EU countries such as Italy" had made similar deals (while similar cases were reported for other countries, including Belgium, Portugal, and even Germany).

Most notable was a cross currency swap, where billions worth of Greek debts and loans were converted into yen and dollars at a fictitious exchange rate, thus hiding the true extent of Greek loans. Such off market swaps were not originally registered as debt because Eurostat statistics did not include such financial derivatives until March 2008, when Eurostat issued a Guidance note that instructed countries to record as debt such instruments. A German derivatives dealer commented, "The Maastricht rules can be circumvented quite legally through swaps", and "In previous years, Italy used a similar trick to mask its true debt with the help of a different US bank." These conditions enabled Greece and other governments to spend beyond their means, while ostensibly meeting EU deficit targets. However, while in 2008 other EU countries with such off-market swaps declared them to Eurostat and went back to correct their debt data (with reservations and disputes remaining), the Greek government told Eurostat it had no such off market swaps and did not adjust its debt measure as required by the rules. The European Commission/Eurostat November 2010 report explains the situation in detail and inter alia notes (page 17): "In 2008 the Greek authorities wrote to Eurostat that: "The State does not engage in options, forwards, futures or FOREX swaps, nor in off market swaps (swaps with non-zero market value at inception)." In reality, however, according to the same report, at end-2008 Greece had off-market swaps with a market value of 5.4 billion Euro, thus understating the value of general government debt by the same amount (2.3 percent of GDP).The European statistics agency, Eurostat, had at regular intervals from 2004 to 2010, sent 10 delegations to Athens with a view to improving the reliability of Greek statistical figures. In January it issued a report that contained accusations of falsified data and political interference. The Finance Ministry accepted the need to restore trust among investors and correct methodological flaws, "by making the National Statistics Service an independent legal entity and phasing in, during the first quarter of 2010, all the necessary checks and balances".

The new government of George Papandreou revised the 2009 deficit forecast from a previous 6%-8% to 12.7% of GDP. The final value, after revisions concluded in the following year using Eurostat's standardized method, was 15.4% of GDP. The figure for Greek government debt at the end of 2009 increased from its first November estimate at €269.3 billion (113% of GDP) to a revised €299.7 billion (127% of GDP). This was the highest for any EU country.

The methodology of revisions, has led to a certain controversy. Specifically, questions have been raised about the way the cost of aforementioned previous actions such as cross currency swaps was estimated, and why it was retroactively added to the 2006, 2007, 2008 and 2009 budget deficits, rather than to those of earlier years, more relevant to the transactions. However, Eurostat and ELSTAT have explained in detail in public reports from November 2010 that the proper recording of off-market swaps that was carried out in November 2010 increased the stock of debt for each year for which the swaps were outstanding (including the years 2006-2009) by about 2.3 percent of GDP but at the same time decreased -not increased- the deficit for each of these years by about 0.02 percent of GDP. Regarding the latter, the Eurostat report explains: " at the same time [as the upward correction of the debt stock], there must be a correction throughout the whole period for the deficit of Greece, as the flows of interest under the swap contract are reduced by an amount equal to the part of any settlement flows relating to the amortisation of the loan (this is a financial transaction with no impact on the deficit), whereas interest on the loan are still imputed as expenditure." Further questions involve the way deficits of several legal entities from the non-financial corporations in the General Government sector were estimated and retroactively added to the same years' (2006 to 2009) budget deficits. Nevertheless, both Eurostat and ELSTAT have explained in public reports how the previous misclassification of certain (17 in number) government enterprises and other government entities outside the General Government sector was corrected as they did not meet the criteria for being classified outside the General Government. As the Eurostat report noted, "Eurostat discovered that the ESA 95 rules for classification of state owned units were not being applied." In the context of this controversy, the former head of Greece's statistical agency, Andreas Georgiou, has been accused of inflating Greece's budget deficit for the aforementioned years. He was cleared of charges of inflating Greece's deficit in February 2019. It has been argued by many international as well as Greek observers that "despite overwhelming evidence that Mr. Georgiou correctly applied EU rules in revising Greece's fiscal deficit and debt figures, and despite strong international support for his case, some Greek courts continued the witch hunt."

The combined corrections lead to an increase of the Greek public debt by about 10%. After the financial audit of the fiscal years 2006-2009 Eurostat announced in November 2010 that the revised figures for 2006-2009 finally were considered to be reliable.

A year later, a worsened recession along with the poor performance of the Greek government in achieving the conditions of the agreed bailout, forced a second bailout. In July 2011, private creditors agreed to a voluntary haircut of 21 percent on their Greek debt, but Eurozone officials considered this write-down to be insufficient. Especially Wolfgang Schäuble, the German finance minister, and Angela Merkel, the German chancellor, "pushed private creditors to accept a 50 percent loss on their Greek bonds", while Jean-Claude Trichet of the European Central Bank had long opposed a haircut for private investors, "fearing that it could undermine the vulnerable European banking system". When private investors agreed to accept bigger losses, the Troika launched the second bailout worth €130 billion. This included a bank recapitalization package worth €48bn. Private bondholders were required to accept extended maturities, lower interest rates and a 53.5% reduction in the bonds' face value.

On 17 October 2011, Minister of Finance Evangelos Venizelos announced that the government would establish a new fund, aimed at helping those who were hit the hardest from the government's austerity measures. The money for this agency would come from a crackdown on tax evasion.

The government agreed to creditor proposals that Greece raise up to €50 billion through the sale or development of state-owned assets, but receipts were much lower than expected, while the policy was strongly opposed by the left-wing political party, Syriza. In 2014, only €530m was raised. Some key assets were sold to insiders.

The second bailout programme was ratified in February 2012. A total of €240 billion was to be transferred in regular tranches through December 2014. The recession worsened and the government continued to dither over bailout program implementation. In December 2012 the Troika provided Greece with more debt relief, while the IMF extended an extra €8.2bn of loans to be transferred from January 2015 to March 2016.

The fourth review of the bailout programme revealed unexpected financing gaps. In 2014 the outlook for the Greek economy was optimistic. The government predicted a structural surplus in 2014, opening access to the private lending market to the extent that its entire financing gap for 2014 was covered via private bond sales.

Instead a fourth recession started in Q4-2014. The parliament called snap parliamentary elections in December, leading to a Syriza-led government that rejected the existing bailout terms. Like the previous Greek governments, the Syriza-led government was met with the same response from Troika, " Pacta sunt servanda" (agreements must be kept). The Troika suspended all scheduled remaining aid to Greece, until the Greek government retreated or convinced the Troika to accept a revised programme. This rift caused a liquidity crisis (both for the Greek government and Greek financial system), plummeting stock prices at the Athens Stock Exchange and a renewed loss of access to private financing.

After Greece's January snap election, the Troika granted a further four-month technical extension of its bailout programme; expecting that the payment terms would be renegotiated before the end of April, allowing for the review and the last financial transfer to be completed before the end of June.

Facing sovereign default, the government made new proposals in the first and second half of June. Both were rejected, raising the prospect of recessionary capital controls to avoid a collapse of the banking sector - and Greek exit from the Eurozone.

The government unilaterally broke off negotiations on 26 June. Tsipras announced that a referendum would be held on 5 July to approve or reject the Troika's 25 June proposal. The Greek stock market closed on 27 June.

The government campaigned for rejection of the proposal, while four opposition parties ( PASOK, To Potami, KIDISO and New Democracy) objected that the proposed referendum was unconstitutional. They petitioned for the parliament or president to reject the referendum proposal. Meanwhile, the Eurogroup announced that the existing second bailout agreement would technically expire on 30 June, 5 days before the referendum.

On 28 June the referendum was approved by the Greek parliament with no interim bailout agreement. The ECB decided to stop its Emergency Liquidity Assistance to Greek banks. Many Greeks continued to withdraw cash from their accounts fearing that capital controls would soon be invoked.

On 5 July a 61% majority voted to reject the bailout terms. This caused stock indexes worldwide to tumble, fearing Greece's potential exit from the Eurozone (" Grexit"). Following the vote, Greece's finance minister Yanis Varoufakis stepped down on 6 July, because of the Prime Minister's denial to follow the public vote and was replaced by Euclid Tsakalotos.

On 13 July, after 17 hours of negotiations, Eurozone leaders reached a provisional agreement on a third bailout programme, substantially the same as their June proposal. Many financial analysts, including the largest private holder of Greek debt, private equity firm manager, Paul Kazarian, found issue with its findings, citing it as a distortion of net debt position.

The Medium-term Fiscal Strategy Framework 2018-2021 voted on 19 May 2017 introduced amendments of the provisions of the 2016 thirteenth austerity package.

In June 2017, news reports indicated that the "crushing debt burden" had not been alleviated and that Greece was at the risk of defaulting on some payments. The International Monetary Fund stated that the country should be able to borrow again "in due course". At the time, the Eurozone gave Greece another credit of $9.5-billion, $8.5 billion of loans and brief details of a possible debt relief with the assistance of the IMF. On 13 July, the Greek government sent a letter of intent to the IMF with 21 commitments it promised to meet by June 2018. They included changes in labour laws, a plan to cap public sector work contracts, to transform temporary contracts into permanent agreements and to recalculate pension payments to reduce spending on social security.

In March 2019, Greece sold 10-year bonds for the first time since before the bailout.

On 1 May 2010, the Greek government announced a series of austerity measures. On 3 May, the Eurozone countries and the IMF agreed to a three-year €110 billion loan, paying 5.5% interest, conditional on the implementation of austerity measures. Credit rating agencies immediately downgraded Greek governmental bonds to an even lower junk status.

The programme was met with anger by the Greek public, leading to protests, riots and social unrest. On 5 May 2010, a national strike was held in opposition. Nevertheless, the austerity package was approved on 29 June 2011, with 155 out of 300 members of parliament voting in favour.

At a 21 July 2011 summit in Brussels, Eurozone leaders agreed to extend Greek (as well as Irish and Portuguese) loan repayment periods from 7 years to a minimum of 15 years and to cut interest rates to 3.5%. They also approved an additional €109 billion support package, with exact content to be finalized at a later summit. On 27 October 2011, Eurozone leaders and the IMF settled an agreement with banks whereby they accepted a 50% write-off of (part of) Greek debt.

Greece brought down its primary deficit from €25bn (11% of GDP) in 2009 to €5bn (2.4% of GDP) in 2011. However, the Greek recession worsened. Overall 2011 Greek GDP experienced a 7.1% decline. The unemployment rate grew from 7.5% in September 2008 to an unprecedented 19.9% in November 2011.

The third and last Economic Adjustment Programme for Greece was signed on 12 July 2015 by the Greek Government under prime minister Alexis Tsipras and it expired on 20 August 2018.

The Hellenic Financial Stability Fund (HFSF) completed a €48.2bn bank recapitalization in June 2013, of which the first €24.4bn were injected into the four biggest Greek banks. Initially, this recapitalization was accounted for as a debt increase that elevated the debt-to-GDP ratio by 24.8 points by the end of 2012. In return for this, the government received shares in those banks, which it could later sell (per March 2012 was expected to generate €16bn of extra "privatization income" for the Greek government, to be realized during 2013-2020).

HFSF offered three out of the four big Greek banks ( NBG, Alpha and Piraeus) warrants to buy back all HFSF bank shares in semi-annual exercise periods up to December 2017, at some predefined strike prices. These banks acquired additional private investor capital contribution at minimum 10% of the conducted recapitalization. However Eurobank Ergasias failed to attract private investor participation and thus became almost entirely financed/owned by HFSF. During the first warrant period, the shareholders in Alpha bank bought back the first 2.4% of HFSF shares. Shareholders in Piraeus Bank bought back the first 0.07% of HFSF shares. National Bank (NBG) shareholders bought back the first 0.01% of the HFSF shares, because the market share price was cheaper than the strike price. Shares not sold by the end of December 2017 may be sold to alternative investors.

In May 2014, a second round of bank recapitalization worth €8.3bn was concluded, financed by private investors. All six commercial banks (Alpha, Eurobank, NBG, Piraeus, Attica and Panellinia) participated. HFSF did not tap into their current €11.5bn reserve capital fund. Eurobank in the second round was able to attract private investors. This required HFSF to dilute their ownership from 95.2% to 34.7%.

According to HFSF's third quarter 2014 financial report, the fund expected to recover €27.3bn out of the initial €48.2bn. This amount included "A€0.6bn positive cash balance stemming from its previous selling of warrants (selling of recapitalization shares) and liquidation of assets, €2.8bn estimated to be recovered from liquidation of assets held by its 'bad asset bank', €10.9bn of EFSF bonds still held as capital reserve, and €13bn from its future sale of recapitalization shares in the four systemic banks." The last figure is affected by the highest amount of uncertainty, as it directly reflects the current market price of the remaining shares held in the four systemic banks (66.4% in Alpha, 35.4% in Eurobank, 57.2% in NBG, 66.9% in Piraeus), which for HFSF had a combined market value of €22.6bn by the end of 2013 - declining to €13bn on 10 December 2014.

Once HFSF liquidates its assets, the total amount of recovered capital will be returned to the Greek government to help to reduce its debt. In early December 2014, the Bank of Greece allowed HFSF to repay the first €9.3bn out of its €11.3bn reserve to the Greek government. A few months later, the remaining HFSF reserves were likewise approved for repayment to ECB, resulting in redeeming €11.4bn in notes during the first quarter of 2015.

In November 2015, the European Investment Bank (EIB) lent Greece about 285 million euros. This extended the 2014 deal that EIB would lend 670 million euros. It was thought that the Greek government would invest the money on Greece's energy industries so as to ensure energy security and manage environmentally friendly projects. Werner Hoyer, the president of EIB, expected the investment to boost employment and have a positive impact on Greece's economy and environment.

In hindsight, while the troika shared the aim to avoid a Greek sovereign default, the approach of each member began to diverge, with the IMF on one side advocating for more debt relief while, on the other side, the EU maintained a hardline on debt repayment and strict monitoring.

According to a poll in February 2012 by Public Issue and SKAI Channel, PASOK-which won the national elections of 2009 with 43.92% of the vote-had seen its approval rating decline to 8%, placing it fifth after centre-right New Democracy (31%), left-wing Democratic Left (18%), far-left Communist Party of Greece (KKE) (12.5%) and radical left Syriza (12%). The same poll suggested that Papandreou was the least popular political leader with a 9% approval rating, while 71% of Greeks did not trust him.

In a May 2011 poll, 62% of respondents felt that the IMF memorandum that Greece signed in 2010 was a bad decision that hurt the country, while 80% had no faith in the Minister of Finance, Giorgos Papakonstantinou, to handle the crisis. (Venizelos replaced Papakonstantinou on 17 June). 75% of those polled had a negative image of the IMF, while 65% felt it was hurting Greece's economy. 64% felt that sovereign default was likely. When asked about their fears for the near future, Greeks highlighted unemployment (97%), poverty (93%) and the closure of businesses (92%).

Polls showed that the vast majority of Greeks are not in favour of leaving the Eurozone. Nonetheless, other 2012 polls showed that almost half (48%) of Greeks were in favour of default, in contrast with a minority (38%) who are not.

Economic, social and political effects

Greek GDP's worst decline, −6.9%, came in 2011, a year in which seasonally adjusted industrial output ended 28.4% lower than in 2005. During that year, 111,000 Greek companies went bankrupt (27% higher than in 2010). As a result, the seasonally adjusted unemployment rate grew from 7.5% in September 2008 to a then record high of 23.1% in May 2012, while the youth unemployment rate time rose from 22.0% to 54.9%.

Key statistics are summarized below, with a detailed table at the bottom of the article. According to the CIA World Factbook and Eurostat:

Greek GDP fell from €242 billion in 2008 to €179 billion in 2014, a 26% decline. Greece was in recession for over five years, emerging in 2014 by some measures. This fall in GDP dramatically increased the Debt to GDP ratio, severely worsening Greece's debt crisis.

GDP per capita fell from a peak of €22,500 in 2007 to €17,000 in 2014, a 24% decline.

The public debt to GDP ratio in 2014 was 177% of GDP or €317 billion. This ratio was the world's third highest after Japan and Zimbabwe. Public debt peaked at €356 billion in 2011; it was reduced by a bailout program to €305 billion in 2012 and then rose slightly.

The annual budget deficit (expenses over revenues) was 3.4% GDP in 2014, much improved versus the 15% of 2009.

Tax revenues for 2014 were €86 billion (about 48% GDP), while expenditures were €89.5 billion (about 50% GDP).

The unemployment rate rose from below 10% (2005-2009) to around 25% (2014-2015).

An estimated 36% of Greeks lived below the poverty line in 2014.

In response to the crisis, the Greek governments resolved to raise the tax rates dramatically. A study showed that indirect taxes were almost doubled between the beginning of the Crisis and 2017. This crisis-induced system of high taxation has been described as "unfair", "complicated", "unstable" and, as a result, "encouraging tax evasion". The tax rates of Greece have been compared to those of Scandinavian countries, but without the same reciprocity, as Greece lacks the welfare state infrastructures.

By 2010, tax receipts consistently were below the expected level. In 2010, estimated tax evasion losses for the Greek government amounted to over $20 billion. 2013 figures showed that the government collected less than half of the revenues due in 2012, with the remaining tax to be paid according to a delayed payment schedule.

Data for 2012 placed the Greek underground or "black" economy at 24.3% of GDP, compared with 28.6% for Estonia, 26.5% for Latvia, 21.6% for Italy, 17.1% for Belgium, 14.7% for Sweden, 13.7% for Finland, and 13.5% for Germany.

A January 2017 report by the DiaNEOsis think-tank indicated that unpaid taxes in Greece at the time totaled approximately 95 billion euros, up from 76 billion euros in 2015, much of it was expected to be uncollectable. Another early 2017 study estimated that the loss to the government as a result of tax evasion was between 6% and 9% of the country's GDP, or roughly between 11 billion and 16 billion euros per annum.

By 2015, the OECD reported that nearly twenty percent of Greeks lacked funds to meet daily food expenses. Consequently, because of financial shock, unemployment directly affects debt management, isolation, and unhealthy coping mechanisms such as depression, suicide, and addiction. In particular, as for the number who reported having attempted suicide, there was an increased suicidality amid economic crisis in Greece, an increase of 36% from 2009 to 2011. As the economy contracted and the welfare state declined, traditionally strong Greek families came under increasing strain, attempting to cope with increasing unemployment and homeless relatives. Many unemployed Greeks cycled between friends and family members until they ran out of options and ended up in homeless shelters. These homeless had extensive work histories and were largely free of mental health and substance abuse concerns.

The Greek government was unable to commit the necessary resources to homelessness, due in part to austerity measures. A program was launched to provide a subsidy to assist homeless to return to their homes, but many enrollees never received grants. Various attempts were made by local governments and non-governmental agencies to alleviate the problem. The non-profit street newspaper Schedia ( Greek: Σχεδία, "Raft"), that is sold by street vendors in Athens attracted many homeless to sell the paper. Athens opened its own shelters, the first of which was called the Hotel Ionis. In 2015, the Venetis bakery chain in Athens gave away ten thousand loaves of bread a day, one-third of its production. In some of the poorest neighborhoods, according to the chain's general manager, "In the third round of austerity measures, which is beginning now, it is certain that in Greece there will be no consumers - there will be only beggars."

The economic and social crisis had profound political effects. In 2011 it gave rise to the anti-austerity Movement of the Indignant in Syntagma Square. The two-party system which dominated Greek politics from 1977 to 2009 crumbled in the double elections of 6 May and 17 June 2012. The main features of this transformation were:

a) The crisis of the two main parties, the center-right New Democracy (ND) and center-left PASOK. ND saw its share of the vote drop from an historical average of >40% to a record low of 19-33% in 2009-19. PASOK collapsed from 44% in 2009 to 13% in June 2012 and stabilized around 8% in the 2019 elections. Meanwhile, Syriza emerged as the main rival of ND, with a share of the vote that rose from 4% to 27% between 2009 and June 2012. This peaked in the elections of 25 January 2015 when Syriza received 36% of the vote and fell to 31.5% in the 7 July 2019 elections.

b) The sharp rise of the Neo-Nazi Golden Dawn, whose share of the vote increased from 0.29% in 2009 to 7% in May and June 2012. In 2012-19, Golden Dawn was the third largest party in the Greek Parliament.

c) A general fragmentation of the popular vote. The average number of parties represented in the Greek Parliament in 1977-2012 was between 4 and 5. In 2012-19 this increased to 7 or 8 parties.

d) From 1974 to 2011 Greece was ruled by single-party governments, except for a brief period in 1989-90. In 2011-19, the country was ruled by two- or three-party coalitions.

The victory of ND in the 7 July 2019 elections with 40% of the vote and the formation of the first one-party government in Greece since 2011 could be the beginning of a new functioning two-party system. However, the significantly weaker performance of Syriza and PASOK's endurance as a competing centre-left party could signal continued party system fluidity.

In 2016 and 2017, the government was encouraging the use of credit card or debit cards to pay for goods and services in order to reduce cash only payments. By January 2017, taxpayers were only granted tax-allowances or deductions when payments were made electronically, with a "paper trail" of the transactions. This was expected to reduce the opportunity by vendors to avoid the payment of VAT (sales) tax and income tax.

By 28 July 2017, numerous businesses were required by law to install a point of sale device to enable them to accept payment by credit or debit card. Failure to comply with the electronic payment facility can lead to fines of up to 1,500 euros. The requirement applied to around 400,000 firms or individuals in 85 professions. The greater use of cards was one of the factors that had already achieved significant increases in VAT collection in 2016.

Krugman suggested that the Greek economy could recover from the recession by exiting the Eurozone ("Grexit") and returning to its national currency, the drachma. That would restore Greece's control over its monetary policy, allowing it to navigate the trade-offs between inflation and growth on a national basis, rather than the entire Eurozone. Iceland made a dramatic recovery following the default of its commercial banking system in 2008, in part due to the devaluing of the krona (ISK). In 2013, it enjoyed an economic growth rate of some 3.3 percent. Canada was able to improve its budget position in the 1990s by devaluing its currency.

Membership in the Eurozone would no longer be perceived as irrevocable. Other countries might be seen by financial markets as being at risk of leaving. These countries might see interest rates rise on their bonds, complicating debt service.

Geopolitical shifts, such as closer relations between Greece and Russia, as the crisis soured relations with Europe.

Significant financial losses for Eurozone countries and the IMF, which are owed the majority of Greece's roughly €300 billion national debt.

Adverse impact on the IMF and the credibility of its austerity strategy.[citation needed ]

Loss of Greek access to global capital markets and the collapse of its banking system.[citation needed ]

Greece could accept additional bailout funds and debt relief (i.e. bondholder haircuts or principal reductions) in exchange for greater austerity. However, austerity has damaged the economy, deflating wages, destroying jobs and reducing tax receipts, thus making it even harder to pay its debts. If further austerity were accompanied by enough reduction in the debt balance owed, the cost might be justifiable.

Economist Thomas Piketty said in July 2015: "We need a conference on all of Europe's debts, just like after World War II. A restructuring of all debt, not just in Greece but in several European countries, is inevitable." This reflected the difficulties that Spain, Portugal, Italy and Ireland had faced (along with Greece) before ECB-head Mario Draghi signaled a pivot to looser monetary policy. Piketty noted that Germany received significant debt relief after World War II. He warned that: "If we start kicking states out, then....Financial markets will immediately turn on the next country."

Germany's role in Greece

So what, in brief, is happening? The answers are: creeping onset of deflation; mass joblessness; thwarted internal rebalancing and over-reliance on external demand. Yet all this is regarded as acceptable, desirable, even moral-indeed, a success. Why? The explanation is myths: the crisis was due to fiscal malfeasance instead of to irresponsible cross-border credit flows; fiscal policy has no role in managing demand; central bank purchases of government bonds are a step towards hyperinflation; and competitiveness determines external surpluses, not the balance between supply and insufficient demand.

"Germany is a weight on the world"
Martin Wolf, 5 November 2013

Germany has played a major role in discussion concerning Greece's debt crisis. A key issue has been the benefits it enjoyed through the crisis, including falling borrowing rates (as Germany, along with other strong Western economies, was seen as a safe haven by investors during the crisis), investment influx, and exports boost thanks to Euro's depreciation (with profits that may have reached 100bn Euros, according to some estimates), as well as other profits made through loans. Critics have also accused the German government of hypocrisy; of pursuing its own national interests via an unwillingness to adjust fiscal policy in a way that would help resolve the eurozone crisis; of using the ECB to serve their country's national interests; and have criticised the nature of the austerity and debt-relief programme Greece has followed as part of the conditions attached to its bailouts.

Hypocrisy has been alleged on multiple bases. "Germany is coming across like a know-it-all in the debate over aid for Greece", commented Der Spiegel, while its own government did not achieve a budget surplus during the era of 1970 to 2011, although a budget surplus indeed was achieved by Germany in all three subsequent years (2012-2014) - with a spokesman for the governing CDU party commenting that "Germany is leading by example in the eurozone - only spending money in its coffers". A Bloomberg editorial, which also concluded that "Europe's taxpayers have provided as much financial support to Germany as they have to Greece", described the German role and posture in the Greek crisis thus:

In the millions of words written about Europe's debt crisis, Germany is typically cast as the responsible adult and Greece as the profligate child. Prudent Germany, the narrative goes, is loath to bail out freeloading Greece, which borrowed more than it could afford and now must suffer the consequences. [...] By December 2009, according to the Bank for International Settlements, German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks' aggregate capital. In other words, they lent more than they could afford. [... I]rresponsible borrowers can't exist without irresponsible lenders. Germany's banks were Greece's enablers.

OECD projections of relative export prices-a measure of competitiveness-showed Germany beating all Eurozone members except for crisis-hit Spain and Ireland for 2012, with the lead only widening in subsequent years. A study by the Carnegie Endowment for International Peace in 2010 noted that "Germany, now poised to derive the greatest gains from the euro's crisis-triggered decline, should boost its domestic demand" to help the periphery recover. In March 2012, Bernhard Speyer of Deutsche Bank reiterated: "If the eurozone is to adjust, southern countries must be able to run trade surpluses, and that means somebody else must run deficits. One way to do that is to allow higher inflation in Germany but I don't see any willingness in the German government to tolerate that, or to accept a current account deficit." According to a research paper by Credit Suisse, "Solving the periphery economic imbalances does not only rest on the periphery countries' shoulders even if these countries have been asked to bear most of the burden. Part of the effort to re-balance Europe also has to been borne [sic] by Germany via its current account." At the end of May 2012, the European Commission warned that an "orderly unwinding of intra-euro area macroeconomic imbalances is crucial for sustainable growth and stability in the euro area," and suggested Germany should "contribute to rebalancing by removing unnecessary regulatory and other constraints on domestic demand". In July 2012, the IMF added its call for higher wages and prices in Germany, and for reform of parts of the country's economy to encourage more spending by its consumers.

Paul Krugman estimates that Spain and other peripherals need to reduce their price levels relative to Germany by around 20 percent to become competitive again:

If Germany had 4 percent inflation, they could do that over 5 years with stable prices in the periphery-which would imply an overall eurozone inflation rate of something like 3 percent. But if Germany is going to have only 1 percent inflation, we're talking about massive deflation in the periphery, which is both hard (probably impossible) as a macroeconomic proposition, and would greatly magnify the debt burden. This is a recipe for failure, and collapse.

Claims that Germany had, by mid-2012, given Greece the equivalent of 29 times the aid given to West Germany under the Marshall Plan after World War II have been contested, with opponents claiming that aid was just a small part of Marshall Plan assistance to Germany and conflating the writing off of a majority of Germany's debt with the Marshall Plan.

The version of adjustment offered by Germany and its allies is that austerity will lead to an internal devaluation, i.e. deflation, which would enable Greece gradually to regain competitiveness. This view too has been contested. A February 2013 research note by the Economics Research team at Goldman Sachs claims that the years of recession being endured by Greece "exacerbate the fiscal difficulties as the denominator of the debt-to-GDP ratio diminishes".

When Horst Reichenbach arrived in Athens towards the end of 2011 to head a new European Union task force, the Greek media instantly dubbed him "Third Reichenbach". Almost four million German tourists-more than any other EU country-visit Greece annually, but they comprised most of the 50,000 cancelled bookings in the ten days after 6 May 2012 Greek elections, a figure The Observer called "extraordinary". The Association of Greek Tourism Enterprises estimates that German visits for 2012 will decrease by about 25%. Such is the ill-feeling, historic claims on Germany from WWII have been reopened, including "a huge, never-repaid loan the nation was forced to make under Nazi occupation from 1941 to 1945."

Perhaps to curb some of the popular reactions, Germany and the eurozone members approve the 2019 budget of Greece, which called for no further pension cuts, in spite of the fact that these were agreed under the third memorandum.

Greece's GDP dropped by 25%, connected with the bailout programmes. This had a critical effect: the debt-to-GDP ratio, the key factor defining the severity of the crisis, would jump from its 2009 level of 127% to about 170%, solely due to the GDP drop (for the same debt). Such a level is considered most probably unsustainable. In a 2013 report, the IMF admitted that it had underestimated the effects of such extensive tax hikes and budget cuts on the country's GDP and issued an informal apology.

The Greek programmes imposed a very rapid improvement in structural primary balance, at least two times faster than in Ireland, Portugal and Cyprus. The results of these policies, which worsened the debt crisis, are often cited, while Greece's president, Prokopis Pavlopoulos, has stressed the creditors' share in responsibility for the depth of the crisis. Greek Prime Minister Alexis Tsipras spoke to Bloomberg about errors in the design of the first two programmes which he alleged that, by imposing too much austerity, lead to a loss of 25% of the Greek GDP.

A large number of negative articles about the Greek economy and society have been published in international media before and during the crisis, leading to accusations about negative stereotyping and possible effects on the evolution of the crisis itself.

Elements contradicting several negative reports include the facts that Greeks even before the crisis worked the hardest in the EU, took fewer vacation days and on average retired at about the same age as the Germans, Greece's private and households debt-to-GDP ratio was one of the lowest in the EU, while its government expenditure as a percentage of GDP was at the EU average. Similarly, negative reports about the Greek economy rarely mentioned the previous decades of Greece's high economic growth rates combined with low government debt.

Karyotis, Georgios; Gerodimos, Roman (2015), The Politics of Extreme Austerity: Greece in the Eurozone Crisis, Basingstoke: Palgrave Macmillan, ISBN 978-1-137-36922-2

Blustein, Paul (7 April 2015), Laid Low: The IMF, the Euro Zone and the First Rescue of Greece (PDF), CIGI Papers Series, CIGI.

Orphanides, Athanasios (19 October 2015), The Euro Area Crisis Five Years After the Original Sin, MIT Sloan Research Paper, MIT Sloan School of Management, doi:10.2139/ssrn.2676103, S2CID 155246890, SSRN 2676103.

Schadler, Susan (October 2013), Unsustainable debt and political economy of lending; constraining the IMF's role in sovereign debt crises (PDF), CIGI Papers Series, CIGI.

Dalakoglou, Dimitris (2012). "The crisis before the crisis". Social Justice. 39 (1): 24-42.

Dalakoglou, Dimitris (2014). Crisis-scapes: Athens and Beyond. Athens, Brighton: ESRC. ISBN 978-1-938660-15-3.

Janssen, Ronald (July 2010). "Greece and the IMF: Who Exactly is Being Saved?" (PDF). Washington, DC: CEPR.

Pasiouras, Fotios (2012). Greek Banking: From the Pre-Euro Reforms to the Financial Crisis and Beyond. Basingstoke: Palgrave Macmillan. doi:10.1057/9781137271570. ISBN 978-0-230-35608-5.

Hyppolite, Paul-Adrien (May 2016), Towards a Theory on the Causes of the Greek Depression: An Investigation of National Balance Sheet Data (1997-2014) (PDF), ELIAMEP: Crisis Observatory.

Takagi, Shinji (8 July 2016), The IMF and the Crises in Greece, Ireland, and Portugal: An Evaluation by the Independent Evaluation Office (PDF), Independent Evaluation Office of the International Monetary Fund.

Kazamias, Alexander (2018). "The Political Effects of the Greek Economic Crisis: The Collapse of the Old Party System", in Vassilis Fouskas and Costas Dimoulas (eds), Greece in the 21st Century: The Politics and Economics of a Crisis. London: Routledge. pp. 163-186. ISBN 9781857438673.

Reinhart, Carmen M.; Trebesch, Christoph (2015), The pitfalls of external dependence: Greece, 1829-2015 (PDF), Brookings Papers on Economic Activity.

Baldwin, Richard; Giavazzi, Francesco, eds. (7 September 2015), The Eurozone Crisis: A Consensus View of the Causes and a Few Possible Solutions, VoxEU, CEPR Press.

Albanese Ginammi Alessandro, Conte Giampaolo, Greek Bailouts in Historical Perspective: Comparative Case Studies, 1893 and 2010|The Journal of European Economic History, 2 2016

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Greek government-debt crisis - Wikipedia

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Early 2009 - Late 2018 (10 years)[1] [2] [3] GDP 200.29 billion (2017) GDP rank 51 (nominal per World Bank 2017) 23,027.41 (2017) 47 (per World Bank 2017) $372 billion as of September 2019[4] All values, unless otherwise stated, are in US dollars.

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https://www.investopedia.com/articles/personal-finance/061115/origins-greeces-debt-crisis.asp

The Greek debt crisis originated from heavy government spending and problems escalated over the years due to slowdown in global economic growth.

The government sent the country on an unsustainable fiscal path. For example, salaries for workers in the public sector rose automatically every year, instead of being based on factors like performance and productivity. Pensions were also generous. A Greek man with 35 years of public-sector service could retire at the ripe old age of 58, and a Greek woman (under certain circumstances) could retire with a pension as early as 50.

With increasing fear of excessive sovereign debt, lenders demanded higher interest rates from Eurozone states in 2010, with high debt and deficit levels making it harder for these countries to finance their budget deficits when they were faced with overall low economic growth.

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The Greek debt crisis originated from heavy government spending and problems escalated over the years due to slowdown in global economic growth. When Greece became the 10th member of the European Union on Jan. 1, 1981, the country's economy and finances were in good shape, with a debt-to-GDP ratio of 28% and a budget deficit below 3% of GDP. But the situation deteriorated dramatically over the next 30 years because fiscal profligacy, which is defined as wasteful and excessive expenditure, caused deficits and debt levels to explode.

The Road to Debt

In Oct. 1981, the Panhellenic Socialist Movement (PASOK), a party founded by Andreas Papandreou in 1974, came into power on a populist platform. Over the next three decades, PASOK alternated in power with the New Democracy Party that was also founded in 1974. In a continuing bid to keep Greek voters happy, both parties lavished liberal welfare policies on their electorates, creating a bloated, inefficient, and protectionist economy.

The government sent the country on an unsustainable fiscal path. For example, salaries for workers in the public sector rose automatically every year, instead of being based on factors like performance and productivity. Pensions were also generous. A Greek man with 35 years of public-sector service could retire at the ripe old age of 58, and a Greek woman (under certain circumstances) could retire with a pension as early as 50.

Perhaps the most infamous example of undue generosity was the prevalence of 13th-month and 14th-month payments to Greek workers. That is, workers were entitled to an additional month's pay in December to help with holiday expenses and also received one-half month's pay at Easter as well as one-half when they took their vacation.

As a result of low productivity, eroding competitiveness, and rampant tax evasion, the government had to resort to a massive debt binge to keep the party going. Greece's admission into the Eurozone in Jan. 2001 and its adoption of the euro made it much easier for the government to borrow. This was because Greek bond yields and interest rates declined as they converged with those of strong European Union (EU) members like Germany.

For instance, the yield spread between 10-year Greek and German government bonds plunged from more than 600 basis points in 1998 to about 50 basis points in 2001. As a result, the Greek economy boomed, with real GDP growth averaged 3.9% per year between 2001 and 2008, the second fastest after Ireland in the Eurozone.

Unsustainable Growth

But that growth came at a steep price in the form of rising deficits and a burgeoning debt load. This was exacerbated by the fact that these measures for Greece had already exceeded the limits mandated by the EU's Stability and Growth Pact when it was admitted into the Eurozone. For example, Greece's debt-to-GDP ratio was at 103% in 2000, well above the Eurozone's maximum permitted level of 60%. Greece's fiscal deficit as a proportion of GDP was 3.7% in 2000, also above the Eurozone's limit of 3%.

The jig was up shortly after the financial crisis of 2007-08, as investors and creditors focused on the colossal sovereign debt loads of the U.S. and Europe. With default a real possibility, investors began demanding much higher yields for sovereign debt issued by Portugal, Ireland, Italy, Greece, and Spain as compensation for this added risk.

Up until then, the sovereign debt risk for those countries had been camouflaged by their wealthy neighbors in the north, such as Germany. By Jan. 2012, however, the yield spread between 10-year Greek and German sovereign bonds has widened by a whopping 3,300 basis points, according to research by the Federal Reserve Bank of St. Louis.

As Greece's economy contracted in the aftermath of the crisis, the debt-to-GDP ratio skyrocketed, peaking at 180% in 2011. The final nail in the coffin came in 2009, when a new Greek government led by Papandreou's son George came into power and revealed that the fiscal deficit was 12.7%, more than twice the previously disclosed figure, sending the debt crisis into a higher gear.

The Bottom Line

The Greek debt crisis had its origins in the fiscal profligacy of previous governments, proving that, like individuals, nations cannot afford to live way beyond their means. As a result, Greeks may have to live with stiff austerity measures for years, if not decades.

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The Alpha and Omega of Greece's Debt Crisis

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The Greek debt crisis originated from heavy government spending and problems escalated over the years due to slowdown in global economic growth. When Greece became the 10th member of the European Union on Jan. 1, 1981, the country's economy and finances were in good shape, with a debt-to-GDP ratio of 28% and a budget deficit below 3% of GDP.

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https://www.thebalance.com/what-is-the-greece-debt-crisis-3305525

Without the austerity measures, the Greek government could have hired new workers. It would have lowered the 25% unemployment rate and boosted economic growth. Greece could have converted its euro-based debt to drachmas, printed more currency and lowered its euro exchange rate.

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The Greek debt crisis is the dangerous amount of sovereign debt Greece owed the European Union between 2008 and 2018. In 2010, Greece said it might default on its debt, threatening the viability of the eurozone itself.

To avoid default, the EU loaned Greece enough to continue making payments.

Note

It was the biggest financial rescue of a bankrupt country in history. As of January 2019, Greece has only repaid 41.6 billion euros. It has scheduled debt payments beyond 2060.

In return for the loan, the EU required Greece to adopt austerity measures. These reforms were intended to strengthen the Greek government and financial structures. They did that, but they also mired Greece in a recession that didn't end until 2017.

The crisis triggered the eurozone debt crisis, creating fears that it would spread into a global financial crisis. It warned of the fate of other heavily indebted EU members. This massive crisis was triggered by a country whose economic output is no bigger than the U.S. State of Connecticut.

Greece Crisis Explained

In 2009, Greece's budget deficit exceeded 15% of its gross domestic product. Fear of default widened the 10-year bond spread and ultimately led to the collapse of Greece's bond market. This would shut down Greece's ability to finance further debt repayments. The chart below highlights in red the period when the 10-year government bond yield passed 35% until vast debt restructuring forced private bondholders to accept investment losses in exchange for less debt.

EU leaders struggled to agree on a solution. Greece wanted the EU to forgive some of the debt, but the EU didn't want to let Greece off scot-free.

The biggest lenders were Germany and its bankers. They championed austerity measures. They believed the measures would improve Greece's comparative advantage in the global marketplace. The austerity measures required Greece to improve how it managed its public finances. It had to modernize its financial statistics and reporting. It lowered trade barriers, increasing exports.

Most importantly, the measures required Greece to reform its pension system. Pension payments had absorbed 17.5% of GDP, higher than in any other EU country. Public pensions were 9% underfunded, compared to 3% for other nations. Austerity measures required Greece to cut pensions by 1% of GDP. It also required a higher pension contribution by employees and limited early retirement.

Half of Greek households relied on pension income since one out of five Greeks were 65 or older. Workers weren't thrilled paying contributions so seniors can receive higher pensions.

The austerity measures forced the government to cut spending and increase taxes. They cost 72 billion euros or 40% of GDP. As a result, the Greek economy shrank 25%. That reduced the tax revenues needed to repay the debt. Unemployment rose to 25%, while youth unemployment hit 50%. Rioting broke out in the streets. The political system was in upheaval as voters turned to anyone who promised a painless way out.

The results are mixed. In 2017, Greece ran a budget surplus of 0.8%. Its economy grew 1.4%, but unemployment was still 22%. One-third of the population lived below the poverty line. Its 2017 debt-to-GDP ratio was 182%.

In 2009, Greece announced its budget deficit would be 12.9% of its GDP. That's more than four times the EU's 3% limit. Rating agencies Fitch, Moody's, and Standard & Poor's lowered Greece's credit ratings. That scared off investors and raised the cost of future loans.

In 2010, Greece announced a plan to lower its deficit to 3% of GDP in two years. Greece attempted to reassure the EU lenders it was fiscally responsible. Just four months later, Greece instead warned it might default.

The EU and the International Monetary Fund provided 240 billion euros in emergency funds in return for austerity measures. The loans only gave Greece enough money to pay interest on its existing debt and keep banks capitalized. The EU had no choice but to stand behind its member by funding a bailout. Otherwise, it would face the consequences of Greece either leaving the Eurozone or defaulting. Austerity measures required Greece to increase the VAT tax and the corporate tax rate. It had to close tax loopholes. It created an independent tax collector to reduce tax evasion. It reduced incentives for early retirement. It raised worker contributions to the pension system. At the same time, it reduced wages to lower the cost of goods and boost exports. The measures required Greece to privatize many state-owned businesses such as electricity transmission. That limited the power of socialist parties and unions.

Why was the EU so harsh? EU leaders and bond rating agencies wanted to make sure Greece wouldn't use the new debt to pay off the old. Germany, Poland, Czech Republic, Portugal, Ireland, and Spain had already used austerity measures to strengthen their own economies. Since they were paying for the bailouts, they wanted Greece to follow their examples. Some EU countries like Slovakia and Lithuania refused to ask their taxpayers to dig into their pockets to let Greece off the hook. These countries had just endured their own austerity measures to avoid bankruptcy with no help from the EU.

In 2011, the European Financial Stability Facility added 190 billion euros to the bailout. Despite the name change, that money also came from EU countries.

By 2012, Bondholders finally agreed to a haircut, exchanging 77 billion euros in bonds for debt worth 75% less.

In 2014, Greece's economy appeared to be recovering, as it grew 0.7%. The government successfully sold bonds and balanced the budget.

In January 2015, voters elected the Syriza party to fight the hated austerity measures. On June 27, Greek Prime Minister Alexis Tsipras announced a referendum on the measures. He falsely promised that a "no" vote would give Greece more leverage to negotiate a 30% debt relief with the EU. On June 30, 2015, Greece missed its scheduled 1.55 billion euros payment. Both sides called it a delay, not an official default. Two days later, the IMF warned that Greece needed 60 billion euros in new aid. It told creditors to take further write-downs on the more than 300 billion euros Greece owed them.

On July 5, Greek voters said "no" to austerity measures. The instability created a run on the banks. Greece sustained extensive economic damage during the two weeks surrounding the vote. Banks closed and restricted ATM withdrawals to 60 euros per day. It threatened the tourism industry at the height of the season, with 14 million tourists visiting the country. The European Central Bank agreed to recapitalize Greek banks with 10 billion euros to 25 billion euros, allowing them to reopen.

Banks imposed a 420 euros weekly limit on withdrawals. That prevented depositors from draining their accounts and worsening the problem. It also helped reduce tax evasion. People turned to debit and credit cards for purchases. As a result, federal revenue increased by 1 billion euros a year.

On July 15, the Greek parliament passed the austerity measures despite the referendum. Otherwise, it would not receive the EU loan of 86 billion euros. The ECB agreed with the IMF to reduce Greece's debt. It lengthened the terms, thus reducing net present value. Greece would still owe the same amount. It could just pay it over a longer time period.

On July 20, Greece made its payment to the ECB, thanks to a loan of 7 billion euros from the EU emergency fund. The United Kingdom demanded the other EU members guarantee its contribution to the bailout.

On September 20, Tsipras and the Syriza party won a snap election. It gave them the mandate to continue to press for debt relief in negotiations with the EU. However, they also had to continue with the unpopular reforms promised to the EU.

In November, Greece's four biggest banks privately raised 14.4 euros billion as required by the ECB. The funds covered bad loans and returned the banks to full functionality. Almost half of the loans banks had on their books were in danger of default. Bank investors contributed this amount in exchange for the 86 billion euros in bailout loans. The economy contracted 0.2%.

In March 2016, the Bank of Greece predicted the economy would return to growth by the summer. It only shrank 0.2% in 2015, but the Greek banks were still losing money. They were reluctant to call in bad debt, believing that their borrowers would repay once the economy improved. That tied up funds they could have lent to new ventures.

On June 17, the EU's European Stability Mechanism disbursed 7.5 billion euros to Greece. It planned to use the funds to pay interest on its debt. Greece continued with austerity measures. It passed legislation to modernize the pension and income tax systems. It promised to privatize more companies, and sell off nonperforming loans.

In May 2017, Tsipras agreed to cut pensions and broaden the tax base. In return, the EU loaned Greece another 86 billion euros. Greece used it to make more debt payments. Tsipras hoped that his conciliatory tone would help him reduce the 293.2 billion euros in outstanding debt. But the German government wouldn't concede much before its September presidential elections.

In July, Greece was able to issue bonds for the first time since 2014. It planned to swap notes issued in the restructuring with the new notes as a move to regain investors' trust.

On January 15, 2018, the Greek parliament agreed on new austerity measures to qualify for the next round of bailouts. On January 22, the eurozone finance ministers approved 6 billion to 7 billion euros. The new measures made it more difficult for union strikes to paralyze the country. They helped banks reduce bad debt, opened up the energy and pharmacy markets, and recalculated child benefits.

On August 20, 2018, the bailout program ended. Most of the outstanding debt is owed to the EU emergency funding entities. These are primarily funded by German banks.

European Financial Stability Mechanism and European Stability Mechanism: 168 billion euros

Eurozone governments: 53 billion euros.

Private investors: 34 billion euros.

Greek government bond holders: 15 billion euros.

European Central Bank: 13 billion euros.

IMF: 12 billion euros.

Until the debt is repaid, European creditors will informally supervise adherence to existing austerity measures. The deal means that no new measures would be created.

How did Greece and the EU get into this mess in the first place? The seeds were sown back in 2001 when Greece adopted the euro as its currency. Greece had been an EU member since 1981 but couldn't enter the eurozone. Its budget deficit had been too high for the eurozone's Maastricht Criteria.

All went well for the first several years. Like other eurozone countries, Greece benefited from the power of the euro. It lowered interest rates and brought in investment capital and loans.

In 2004, Greece announced it had lied to get around the Maastricht Criteria. The EU imposed no sanctions. Why not? There were three reasons.

France and Germany were also spending above the limit at the time. They'd be hypocritical to sanction Greece until they imposed their own austerity measures first.

There was uncertainty on exactly what sanctions to apply. They could expel Greece, but that would be disruptive and weaken the euro.

The EU wanted to strengthen the power of the euro in international currency markets. A strong euro would convince other EU countries, like the United Kingdom, Denmark, and Sweden, to adopt the euro.

As a result, Greek debt continued to rise until the crisis erupted in 2008.

Why Greece Didn't Leave the Eurozone

Greece could have abandoned the euro and reinstated the drachma. Without the austerity measures, the Greek government could have hired new workers. It would have lowered the 25% unemployment rate and boosted economic growth. Greece could have converted its euro-based debt to drachmas, printed more currency and lowered its euro exchange rate. That would have reduced its debt, lowered the cost of exports, and attracted tourists to a cheaper vacation destination.

At first, that would seem ideal for Greece, but foreign owners of Greek debt would have suffered debilitating losses as the drachma plummeted. That would debase the value of repayments in their own currency. Some banks would go bankrupt. Most of the debt is owned by European governments, whose taxpayers would foot the bill.

Plummeting drachma values would have triggered hyperinflation, as the cost of imports skyrocketed. Greece imports 40% of its food and pharmaceuticals and 80% of its energy.

Many companies refused to export these items to a country that might not pay its bills. The country couldn't attract new foreign direct investment in such an unstable situation. The only countries that would have lent to Greece are Russia and China. In the long run, Greece would find itself back to where it began: burdened with debt it couldn't repay.

Interest rates on other indebted countries would have risen. Rating agencies would worry they'd leave the euro also. The value of the euro itself would have weakened as currency traders use the crisis as a reason to bet against it.

Why Greece Didn't Default

A widespread Greek default would have a more immediate effect. First, Greek banks would have gone bankrupt without loans from the European Central Bank. Losses would have threatened the solvency of other European banks, particularly in Germany and France. They, along with other private investors, held 34.1 billion euros in Greek debt.

Eurozone governments owned 52.9 billion euros. That's in addition to the 131 billion euros owned by the EFSF, essentially also eurozone governments. Germany owned the most debt, but it was a tiny percentage of its GDP. Much of the debt didn't come due until 2020 or later. Smaller countries faced a more serious situation. Finland's portion of the debt was 10% of its annual budget. The ECB held 26.9 billion euros of Greek debt.

If Greece had defaulted, the ECB would have been fine. It was unlikely that other indebted countries would have defaulted.

For these reasons, a Greek default wouldn't have been worse than the 1998 Long-Term Capital Management debt crisis. That's when Russia's default led to a tidal wave of defaults in other emerging market countries. The IMF prevented many defaults by providing capital until their economies had improved. The IMF owns 21.1 billion euros of Greek debt, not enough to deplete it.

The differences would be the scale of defaults and that they are in developed markets. It would affect the source of much of the IMF's funds. The United States wouldn't be able to help. While a huge backer of IMF funding, it's now deep in debt, itself. There would be no political appetite for an American bailout of European sovereign debt.

Despite austerity measures, many aspects of Greece's economy are still problematic. Government spending makes up 48% of the GDP while EU bailouts contribute around 3%. As of 2017, Greece relies on tourism for 20% of GDP. Bureaucracy often delays commercial investments for decades. The government has shrunk, but it is still inefficient. There is too much political patronage. Government decision-making is centralized, further slowing response time.

This bureaucracy, combined with unclear property rights and judicial obstacles, has kept Greece from selling 50 billion euros worth of state-owned assets. Only 6 billion euros worth of property has been sold since 2011.

Tax evasion has gone underground as more people operate in the black economy. It now comprises 21.5% of GDP. As a result, fewer people are paying higher taxes to receive less from the government than they did before the crisis.

Many of the jobs available are part-time and pay less than before the crisis. As a result, hundreds of thousands of the best and brightest have left the country. Banks haven't completely recuperated, and are hesitant to make new loans to businesses. It will be a slow road to recovery.

Frequently Asked Questions (FAQs)

When did the Greek debt crisis begin?

How did the Greek debt crisis affect the American economy?

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Understand the Greek Debt Crisis in 5 Minutes

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The Greek debt crisis is the dangerous amount of sovereign debt Greece owed the European Union between 2008 and 2018. In 2010, Greece said it might default on its debt, threatening the viability of the eurozone itself. To avoid default, the EU loaned Greece enough to continue making payments.

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https://www.piie.com/microsites/greek-debt-crisis-no-easy-way-out

To keep the Greek government from defaulting, various players swung into action. What became known as “the Troika”—the European Commission, the ECB, and the IMF—had to reconcile three pressures

French and German banks owned much of Greece’s debts. Already weakened by losses from the global financial crisis, they were concerned about shouldering the additional cost of providing debt relief to Greece

Greek leaders and their rescuers came up with a three-year bailout plan in May 2010. The plan imposed tough austerity on the Greek government and its people to reduce the Greek budget deficit. The retrenchment included tax increases, reduced pensions, public sector wage cuts and looser regulations to restore competitiveness and growth.

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CREDITS

CONTENT AND RESEARCH

Jeromin Zettelmeyer, Álvaro Leandro, David Xu

EDITING

Steven R. Weisman, Madona Devasahayam

PRODUCTION AND DESIGN

Melina Kolb, William Melancon, Susann Luetjen, Jeremey Tripp

Final Section Photo Credit: Shutterstock/Kostas Koutsaftikis
Special thanks to Keith Brown of Arizona State University for his contribution.
The Peterson Institute for International Economics (PIIE) is an independent nonprofit, nonpartisan research organization dedicated to strengthening prosperity and human welfare in the global economy through expert analysis and practical policy solutions. Learn more at www.piie.com.

© 2020 Peterson Institute for International Economics. All rights reserved.

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CONTENT AND RESEARCH Jeromin Zettelmeyer, Álvaro Leandro, David Xu EDITING Steven R. Weisman, Madona Devasahayam PRODUCTION AND DESIGN Melina Kolb, William Melancon, Susann Luetjen, Jeremey Tripp Final Section Photo Credit: Shutterstock/Kostas Koutsaftikis Special thanks to Keith Brown of Arizona State University for his contribution.

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https://www.vanityfair.com/news/2015/01/china-worlds-largest-economy

2014 was the last year in which the United States could claim to be the world’s largest economic power. China enters 2015 in the top position, where it will likely remain for a very long time, if not forever.

in terms of exports and household savings—China long ago surpassed the United States. With savings and investment making up close to 50 percent of G.D.P., the Chinese worry about having too much savings, just as Americans worry about having too little. In other areas, such as manufacturing, the Chinese overtook the U.S. only within the past several years. They still trail America when it comes to the number of patents awarded, but they are closing the gap.

https://www.iimk.ac.in/libportal/reports/China-Overtakes-US-Worlds-Largest-Economy-White-Paper-Euromonitor-Report.pdf

Although the growth in China’s total gross income over the past decades has been very impressive, China is still lagging far behind the USA in terms of per capita gross income. To international businesses, this per capita income
indicator matters most because it reflects consumers’ purchasing power. By 2030, Euromonitor forecasts that per capita gross income level in the USA will still be 4.6 times higher than that of China, although this will be a significantly
narrower gap compared to 2013 when the USA’s per capita gross income was 10.5 times higher than that of China.

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When the history of 2014 is written, it will take note of a large fact that has received little attention: 2014 was the last year in which the United States could claim to be the world's largest economic power. China enters 2015 in the top position, where it will likely remain for a very long time, if not forever. In doing so, it returns to the position it held through most of human history.

Comparing the gross domestic product of different economies is very difficult. Technical committees come up with estimates, based on the best judgments possible, of what are called "purchasing-power parities," which enable the comparison of incomes in various countries. These shouldn't be taken as precise numbers, but they do provide a good basis for assessing the relative size of different economies. Early in 2014, the body that conducts these international assessments-the World Bank's International Comparison Program-came out with new numbers. (The complexity of the task is such that there have been only three reports in 20 years.) The latest assessment, released last spring, was more contentious and, in some ways, more momentous than those in previous years. It was more contentious precisely because it was more momentous: the new numbers showed that China would become the world's largest economy far sooner than anyone had expected-it was on track to do so before the end of 2014.

The source of contention would surprise many Americans, and it says a lot about the differences between China and the U.S.-and about the dangers of projecting onto the Chinese some of our own attitudes. Americans want very much to be No. 1-we enjoy having that status. In contrast, China is not so eager. According to some reports, the Chinese participants even threatened to walk out of the technical discussions. For one thing, China did not want to stick its head above the parapet-being No. 1 comes with a cost. It means paying more to support international bodies such as the United Nations. It could bring pressure to take an enlightened leadership role on issues such as climate change. It might very well prompt ordinary Chinese to wonder if more of the country's wealth should be spent on them. (The news about China's change in status was in fact blacked out at home.) There was one more concern, and it was a big one: China understands full well America's psychological preoccupation with being No. 1-and was deeply worried about what our reaction would be when we no longer were.

Of course, in many ways-for instance, in terms of exports and household savings-China long ago surpassed the United States. With savings and investment making up close to 50 percent of G.D.P., the Chinese worry about having too much savings, just as Americans worry about having too little. In other areas, such as manufacturing, the Chinese overtook the U.S. only within the past several years. They still trail America when it comes to the number of patents awarded, but they are closing the gap.

The areas where the United States remains competitive with China are not always ones we'd most want to call attention to. The two countries have comparable levels of inequality. (Ours is the highest in the developed world.) China outpaces America in the number of people executed every year, but the U.S. is far ahead when it comes to the proportion of the population in prison (more than 700 per 100,000 people). China overtook the U.S. in 2007 as the world's largest polluter, by total volume, though on a per capita basis we continue to hold the lead. The United States remains the largest military power, spending more on our armed forces than the next top 10 nations combined (not that we have always used our military power wisely). But the bedrock strength of the U.S. has always rested less on hard military power than on "soft power," most notably its economic influence. That is an essential point to remember.

Tectonic shifts in global economic power have obviously occurred before, and as a result we know something about what happens when they do. Two hundred years ago, in the aftermath of the Napoleonic Wars, Great Britain emerged as the world's dominant power. Its empire spanned a quarter of the globe. Its currency, the pound sterling, became the global reserve currency-as sound as gold itself. Britain, sometimes working in concert with its allies, imposed its own trade rules. It could discriminate against importation of Indian textiles and force India to buy British cloth. Britain and its allies could also insist that China keep its markets open to opium, and when China, knowing the drug's devastating effect, tried to close its borders, the allies twice went to war to maintain the free flow of this product.

Britain's dominance was to last a hundred years and continued even after the U.S. surpassed Britain economically, in the 1870s. There's always a lag (as there will be with the U.S. and China). The transitional event was World War I, when Britain achieved victory over Germany only with the assistance of the United States. After the war, America was as reluctant to accept its potential new responsibilities as Britain was to voluntarily give up its role. Woodrow Wilson did what he could to construct a postwar world that would make another global conflict less likely, but isolationism at home meant that the U.S. never joined the League of Nations. In the economic sphere, America insisted on going its own way-passing the Smoot-Hawley tariffs and bringing to an end an era that had seen a worldwide boom in trade. Britain maintained its empire, but gradually the pound sterling gave way to the dollar: in the end, economic realities dominate. Many American firms became global enterprises, and American culture was clearly ascendant.

World War II was the next defining event. Devastated by the conflict, Britain would soon lose virtually all of its colonies. This time the U.S. did assume the mantle of leadership. It was central in creating the United Nations and in fashioning the Bretton Woods agreements, which would underlie the new political and economic order. Even so, the record was uneven. Rather than creating a global reserve currency, which would have contributed so much to worldwide economic stability-as John Maynard Keynes had rightly argued-the U.S. put its own short-term self-interest first, foolishly thinking it would gain by having the dollar become the world's reserve currency. The dollar's status is a mixed blessing: it enables the U.S. to borrow at a low interest rate, as others demand dollars to put into their reserves, but at the same time the value of the dollar rises (above what it otherwise would have been), creating or exacerbating a trade deficit and weakening the economy.

For 45 years after World War II, global politics was dominated by two superpowers, the U.S. and the U.S.S.R., representing two very different visions both of how to organize and govern an economy and a society and of the relative importance of political and economic rights. Ultimately, the Soviet system was to fail, as much because of internal corruption, unchecked by democratic processes, as anything else. Its military power had been formidable; its soft power was increasingly a joke. The world was now dominated by a single superpower, one that continued to invest heavily in its military. That said, the U.S. was a superpower not just militarily but also economically.

The United States then made two critical mistakes. First, it inferred that its triumph meant a triumph for everything it stood for. But in much of the Third World, concerns about poverty-and the economic rights that had long been advocated by the left-remained paramount. The second mistake was to use the short period of its unilateral dominance, between the fall of the Berlin Wall and the fall of Lehman Brothers, to pursue its own narrow economic interests-or, more accurately, the economic interests of its multi-nationals, including its big banks-rather than to create a new, stable world order. The trade regime the U.S. pushed through in 1994, creating the World Trade Organization, was so unbalanced that, five years later, when another trade agreement was in the offing, the prospect led to riots in Seattle. Talking about free and fair trade, while insisting (for instance) on subsidies for its rich farmers, has cast the U.S. as hypocritical and self-serving.

And Washington never fully grasped the consequences of so many of its shortsighted actions-intended to extend and strengthen its dominance but in fact diminishing its long-term position. During the East Asia crisis, in the 1990s, the U.S. Treasury worked hard to undermine the so-called Miyazawa Initiative, Japan's generous offer of $100 billion to help jump-start economies that were sinking into recession and depression. The policies the U.S. pushed on these countries-austerity and high interest rates, with no bailouts for banks in trouble-were just the opposite of those that these same Treasury officials advocated for the U.S. after the meltdown of 2008. Even today, a decade and a half after the East Asia crisis, the mere mention of the U.S. role can prompt angry accusations and charges of hypocrisy in Asian capitals.

Now China is the world's No. 1 economic power. Why should we care? On one level, we actually shouldn't. The world economy is not a zero-sum game, where China's growth must necessarily come at the expense of ours. In fact, its growth is complementary to ours. If it grows faster, it will buy more of our goods, and we will prosper. There has always, to be sure, been a little hype in such claims-just ask workers who have lost their manufacturing jobs to China. But that reality has as much to do with our own economic policies at home as it does with the rise of some other country.

On another level, the emergence of China into the top spot matters a great deal, and we need to be aware of the implications.

First, as noted, America's real strength lies in its soft power-the example it provides to others and the influence of its ideas, including ideas about economic and political life. The rise of China to No. 1 brings new prominence to that country's political and economic model-and to its own forms of soft power. The rise of China also shines a harsh spotlight on the American model. That model has not been delivering for large portions of its own population. The typical American family is worse off than it was a quarter-century ago, adjusted for inflation; the proportion of people in poverty has increased. China, too, is marked by high levels of inequality, but its economy has been doing some good for most of its citizens. China moved some 500 million people out of poverty during the same period that saw America's middle class enter a period of stagnation. An economic model that doesn't serve a majority of its citizens is not going to provide a role model for others to emulate. America should see the rise of China as a wake-up call to put our own house in order.

Second, if we ponder the rise of China and then take actions based on the idea that the world economy is indeed a zero-sum game-and that we therefore need to boost our share and reduce China's-we will erode our soft power even further. This would be exactly the wrong kind of wake-up call. If we see China's gains as coming at our expense, we will strive for "containment," taking steps designed to limit China's influence. These actions will ultimately prove futile, but will nonetheless undermine confidence in the U.S. and its position of leadership. U.S. foreign policy has repeatedly fallen into this trap. Consider the so-called Trans-Pacific Partnership, a proposed free-trade agreement among the U.S., Japan, and several other Asian countries-which excludes China altogether. It is seen by many as a way to tighten the links between the U.S. and certain Asian countries, at the expense of links with China. There is a vast and dynamic Asia supply chain, with goods moving around the region during different stages of production; the Trans-Pacific Partnership looks like an attempt to cut China out of this supply chain.

Another example: the U.S. looks askance at China's incipient efforts to assume global responsibility in some areas. China wants to take on a larger role in existing international institutions, but Congress says, in effect, that the old club doesn't like active new members: they can continue taking a backseat, but they can't have voting rights commensurate with their role in the global economy. When the other G-20 nations agree that it is time that the leadership of international economic organizations be determined on the basis of merit, not nationality, the U.S. insists that the old order is good enough-that the World Bank, for instance, should continue to be headed by an American.

Yet another example: when China, together with France and other countries-supported by an International Commission of Experts appointed by the president of the U.N., which I chaired-suggested that we finish the work that Keynes had started at Bretton Woods, by creating an international reserve currency, the U.S. blocked the effort.

And a final example: the U.S. has sought to deter China's efforts to channel more assistance to developing countries through newly created multilateral institutions in which China would have a large, perhaps dominant role. The need for trillions of dollars of investment in infrastructure has been widely recognized-and providing that investment is well beyond the capacity of the World Bank and existing multilateral institutions. What is needed is not only a more inclusive governance regime at the World Bank but also more capital. On both scores, the U.S. Congress has said no. Meanwhile, China is trying to create an Asian Infrastructure Fund, working with a large number of other countries in the region. The U.S. is twisting arms so that those countries won't join.

The United States is confronted with real foreign-policy challenges that will prove hard to resolve: militant Islam; the Palestine conflict, which is now in its seventh decade; an aggressive Russia, insisting on asserting its power, at least in its own neighborhood; continuing threats of nuclear proliferation. We will need the cooperation of China to address many, if not all, of these problems.

We should take this moment, as China becomes the world's largest economy, to "pivot" our foreign policy away from containment. The economic interests of China and the U.S. are intricately intertwined. We both have an interest in seeing a stable and well-functioning global political and economic order. Given historical memories and its own sense of dignity, China won't be able to accept the global system simply as it is, with rules that have been set by the West, to benefit the West and its corporate interests, and that reflect the West's perspectives. We will have to cooperate, like it or not-and we should want to. In the meantime, the most important thing America can do to maintain the value of its soft power is to address its own systemic deficiencies-economic and political practices that are corrupt, to put the matter baldly, and skewed toward the rich and powerful.

A new global political and economic order is emerging, the result of new economic realities. We cannot change these economic realities. But if we respond to them in the wrong way, we risk a backlash that will result in either a dysfunctional global system or a global order that is distinctly not what we would have wanted.

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China Has Overtaken the U.S. as the World's Largest Economy

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When the history of 2014 is written, it will take note of a large fact that has received little attention: 2014 was the last year in which the United States could claim to be the world's largest economic power. China enters 2015 in the top position, where it will likely remain for a very long time, if not forever.

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https://www.lehmanbrown.com/insights-newsletter/twoofthemostcharacteristicfeaturesofchinaseconomy/

-Heavy reliance on export driven growth
-Addiction to collecting US dollars.

The former has provided a massive current-account surplus, while the latter an artificially undervalued currency.

https://www.everycrsreport.com/reports/RL33534.html

-Large-scale capital investment (financed by large domestic savings and foreign investment)
-Rapid productivity growth

The type of economy:
The socialist market economy (SME)

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Two of the most characteristic features of China's economy today are its heavy reliance on export driven growth and its addiction to collecting US dollars. The former has provided a massive current-account surplus, while the latter an artificially undervalued currency. Together, they have largely effectuated the current Chinese liquidity problem. This has, of course, exacerbated international trade tensions and forced the central bank to worry about and fend off inflation and speculative excess. China's $3bn investment in Blackstone stock and its future plans to more aggressively deploy their foreign reserves should serve to somewhat balance current and financial-accounts and even, depending on the nature of investment, curry overseas good will. Low interest rates, working in concert with additional facets of PRC monetary policy to keep the Yuan inexpensive and skirt inflows of "hot money", have swelled the money supply, ignited the equity markets and excessively fueled export-sectors of the economy. Recent, nearly concurrent moves to raise interest rates, widen the band on which the Yuan floats and increase bank reserve ratio requirements all underscore the urgency with which Beijing desires not only to provide relief, but also nudge the economy (with increasing force) toward a healthier, more sustainable model. Some problems are more intractable than others and no one adjustment or area of adjustment will bring a panacea-like paradigm shift. That said, one of the more stubborn issues contributing to Chinese liquidity concerns is a persistent inclination toward investment over consumption. The central government sets the trend placing their continuously ballooning $1,200bn reserves of foreign exchange in overseas markets-mainly ultra-safe, low-growth US treasuries. While it is necessary and a supremely good idea to wisely reinvest such sizable reserves, China remains (especially on a per-capita basis) a relatively poor country whose needy, underprivileged and disenfranchised masses far outnumber her more fortunate peers. Party leadership has rightly made addressing domestic wealth and opportunity disparities a priority and diverting cash away from overseas investment to more robustly fund social reconstruction projects is smart and affordable policy; it will also simultaneously foster growth through what is traditionally the most significant component of GDP, domestic spending-an area of frustratingly sluggish growth in the Chinese economy. Lack of domestic consumption, especially during a period of such unprecedented growth, stems in no small part from PRC financial realities. The economy is entirely without deep/stable capital markets and the population's wealth is confined to the limited (government sanctioned) financial alternatives-most prominently, saving in banks. Until the most recent series of banking-sector reforms and today's stock market surge, depositing in banks at rates outstripped by inflation was, for the vast majority of Chinese, the only viable financial instrument. While today China enjoys bullish, super-active equity markets, most all observers agree that a central, stabilizing, value-informed dynamic-the foundation of any healthy market-is altogether absent. Were capital markets of a healthier, more substantive nature created, providing competitive financial instruments of greater value and potential, not only would a massive-currently nonexistent-component of the Chinese service sector find life, but also both create new wealth and unlock existing capital tucked away in precautionary savings. Consumption, both of and resulting from increased financial performance and confidence should grow considerably. Today, understandably, the Chinese service-sector is small. As the economy continues to develop and mature, however, and as wealth continues to grow over larger areas of the population, this component of the economy will become increasingly important. The lack of domestic consumption and inadequate service-sector further pressurize an economy that is already off balance. Erik Britton and Vanessa Rossi note, "Historically, in all economies, the period of rapid industrialization generally is just the first phase of economic development. The next phase involves the shift out of manufacturing industries toward service industries." To this end, economic diversification, especially areas targeting domestic consumption, should be encouraged. Constraints on service-sector imports need to be relaxed and centrally directed incentives should be shifted away from heavy industry and manufacturing and toward cultivating the nascent service-sector.

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Two of the most characteristic features of China's economy

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Two of the most characteristic features of China's economy today are its heavy reliance on export driven growth and its addiction to collecting US dollars. The former has provided a massive current-account surplus, while the latter an artificially undervalued currency. Together, they have largely effectuated the current Chinese liquidity problem.

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https://en.wikipedia.org/wiki/2016_United_Kingdom_European_Union_membership_referendum

The United Kingdom European Union membership referendum, commonly referred to as the EU referendum or the Brexit referendum, took place on 23 June 2016 in the United Kingdom (UK) and Gibraltar to ask the electorate whether the country should remain a member of, or leave, the European Union (EU). The result would then be facilitated through the European Union Referendum Act 2015 and the Political Parties, Elections and Referendums Act 2000. The referendum resulted in 51.9% of the votes cast being in favour of leaving the EU. Although the referendum was legally non-binding, the government of the time promised to implement the result

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United Kingdom European Union membership referendum

Should the United Kingdom remain a member of the European Union or leave the European Union?

Location

United Kingdom (pop. 65.65m)[1] and Gibraltar (pop. 34,000)[2]

Date

23 June 2016

Votes

%

Leave

17,410,742

51.89%

Remain

16,141,241

48.11%

Valid votes

33,551,983

99.92%

Invalid or blank votes

25,359

0.08%

Total votes

33,577,342

100.00%

Registered voters/turnout

46,500,001

72.21%

Results by voting area

Outcome
The UK leaves the EU

On the map, the darker shades for a colour indicate a larger majority. The results for Northern Ireland are by parliamentary constituency. The electorate of 46.5m represents 70.8% of the population.

The United Kingdom European Union membership referendum, commonly referred to as the EU referendum or the Brexit referendum, took place on 23 June 2016 in the United Kingdom (UK) and Gibraltar to ask the electorate whether the country should remain a member of, or leave, the European Union (EU). The result would then be facilitated through the European Union Referendum Act 2015 and also the Political Parties, Elections and Referendums Act 2000. The referendum resulted in 51.9% of the votes cast being in favour of leaving the EU. Although the referendum was legally non-binding, the government of the time promised to implement the result. The succeeding government, led by Theresa May, initiated the official withdrawal process on 29 March 2017, meaning that the UK was due to leave the EU on 29 March 2019 (when the two-year period for Brexit negotiations was due to expire). This negotiation period was later extended until 31 October 2019. After May failed to secure the backing of Parliament on her Brexit deal, she resigned as Prime Minister, and was succeeded by Boris Johnson. Johnson was then forced to extend the negotiation period again until 31 January. At 11 pm GMT on 31 January 2020, the UK officially withdrew from the EU.

In May 2015, following a Conservative Party manifesto pledge, the legal basis for the EU referendum was established through the European Union Referendum Act 2015. Britain Stronger in Europe became the official group campaigning for the UK to remain in the EU, and was endorsed by the Prime Minister David Cameron and Chancellor George Osborne. Vote Leave was the official group campaigning for the UK to leave the EU, and was fronted by Conservative MPs Boris Johnson and Michael Gove, along with Labour MP Gisela Stuart. Other campaign groups, political parties, businesses, trade unions, newspapers and prominent individuals were also involved, with both sides having supporters from across the political spectrum. Parties in favour of 'remain' included Labour, the Liberal Democrats, the Scottish National Party (SNP), Plaid Cymru and the Green Party; while the UK Independence Party (UKIP) campaigned in favour of leaving the European Union; and the Conservative Party remained neutral. In spite of the official positions of the Conservative Party and Labour, both parties allowed their MPs to publicly campaign for either side of the issue.

Immediately after the result, financial markets reacted negatively worldwide, and Cameron announced that he would resign as Prime Minister and Leader of the Conservative Party, having campaigned unsuccessfully to remain in the European Union. It was the first time that a national referendum result had gone against the preferred option of the UK Government. Cameron was succeeded by Theresa May on 13 July 2016. The Labour Party also faced a leadership challenge as a result of the EU referendum.

The European Communities were formed in the 1950s - the European Coal and Steel Community (ECSC) in 1952, and the European Atomic Energy Community (EAEC or Euratom) and European Economic Community (EEC) in 1957. The EEC, the more ambitious of the three, came to be known as the "Common Market". The UK first applied to join them in 1961, but this was vetoed by France. A later application was successful, and the UK joined in 1973; two years later, the first ever national referendum on continuing membership resulted in 67.2% approval, with a 64.62% turnout. Political integration gained greater focus when the Maastricht Treaty established the European Union (EU) in 1993, which incorporated (and after the Treaty of Lisbon, succeeded) the European Communities.

When they attended the May 2012 NATO summit meeting, UK Prime Minister David Cameron, Foreign Secretary William Hague and Ed Llewellyn discussed the idea of using a European Union referendum as a concession to energise the Eurosceptic wing of the Conservative Party. In January 2013, Cameron delivered the Bloomberg speech and promised that, should the Conservatives win a parliamentary majority at the 2015 general election, the British government would negotiate more favourable arrangements for continuing British membership of the EU, before holding a referendum on whether the UK should remain in or leave the EU. The Conservative Party published a draft EU Referendum Bill in May 2013, and outlined its plans for renegotiation followed by an in-out vote (i.e. a referendum giving options only of leaving and of remaining in under the current terms, or under new terms if these had become available), were the party to be re-elected in 2015. The draft Bill stated that the referendum had to be held no later than 31 December 2017.

The draft legislation was taken forward as a Private Member's Bill by Conservative MP James Wharton which was known as the European Union (Referendum) Bill 2013. The bill's First Reading in the House of Commons took place on 19 June 2013. Cameron was said by a spokesperson to be "very pleased" and would ensure the Bill was given "the full support of the Conservative Party".

Regarding the ability of the bill to bind the UK Government in the 2015-20 Parliament (which indirectly, as a result of the referendum itself, proved to last only two years) to holding such a referendum, a parliamentary research paper noted that:

The Bill simply provides for a referendum on continued EU membership by the end of December 2017 and does not otherwise specify the timing, other than requiring the Secretary of State to bring forward orders by the end of 2016. [...] If no party obtained a majority at the [next general election due in 2015], there might be some uncertainty about the passage of the orders in the next Parliament.

The bill received its Second Reading on 5 July 2013, passing by 304 votes to none after almost all Labour MPs and all Liberal Democrat MPs abstained, cleared the Commons in November 2013, and was then introduced to the House of Lords in December 2013, where members voted to block the bill.

Conservative MP Bob Neill then introduced an Alternative Referendum Bill to the Commons. After a debate on 17 October 2014, it passed to the Public Bills Committee, but because the Commons failed to pass a money resolution, the bill was unable to progress further before the dissolution of parliament on 27 March 2015.

At the European Parliament election in 2014, the UK Independence Party (UKIP) secured more votes and more seats than any other party, the first time a party other than the Conservatives or Labour had topped a nationwide poll in 108 years, leaving the Conservatives in third place.

Under Ed Miliband's leadership between 2010 and 2015, the Labour Party ruled out an in-out referendum unless and until a further transfer of powers from the UK to the EU were to be proposed. In their manifesto for the 2015 general election, the Liberal Democrats pledged to hold an in-out referendum only in the event of there being a change in the EU treaties. The UK Independence Party (UKIP), the British National Party (BNP), the Green Party, the Democratic Unionist Party and the Respect Party all supported the principle of a referendum.

In early 2014, David Cameron outlined the changes he aimed to bring about in the EU and in the UK's relationship with it. These were: additional immigration controls, especially for citizens of new EU member states; tougher immigration rules for present EU citizens; new powers for national parliaments collectively to veto proposed EU laws; new free-trade agreements and a reduction in bureaucracy for businesses; a lessening of the influence of the European Court of Human Rights on British police and courts; more power for individual member states, and less for the central EU; and abandonment of the EU notion of "ever closer union". He intended to bring these about during a series of negotiations with other EU leaders and then, if re-elected, to announce a referendum.

In November that year, Cameron gave an update on the negotiations and further details of his aims. The key demands made of the EU were: on economic governance, to recognise officially that Eurozone laws would not necessarily apply to non-Eurozone EU members and the latter would not have to bail out troubled Eurozone economies; on competitiveness, to expand the single market and to set a target for the reduction of bureaucracy for businesses; on sovereignty, for the UK to be legally exempted from "ever closer union" and for national parliaments to be able collectively to veto proposed EU laws; and, on immigration, for EU citizens going to the UK for work to be unable to claim social housing or in-work benefits until they had worked there for four years, and for them to be unable to send child benefit payments overseas.

The outcome of the renegotiations was announced in February 2016. The renegotiated terms were in addition to the United Kingdom's existing opt-outs in the European Union and the UK rebate. The significance of the changes to the EU-UK agreement was contested and speculated upon, with none of the changes considered fundamental, but some considered important to many British people. Some limits to in-work benefits for EU immigrants were agreed, but these would apply on a sliding scale for four years and would be for new immigrants only; before they could be applied, a country would have to get permission from the European Council. Child benefit payments could still be made overseas, but these would be linked to the cost of living in the other country. On sovereignty, the UK was reassured that it would not be required to participate in "ever closer union"; these reassurances were "in line with existing EU law". Cameron's demand to allow national parliaments to veto proposed EU laws was modified to allow national parliaments collectively to object to proposed EU laws, in which case the European Council would reconsider the proposal before itself deciding what to do. On economic governance, anti-discrimination regulations for non-Eurozone members would be reinforced, but they would be unable to veto any legislation. The final two areas covered were proposals to "exclude from the scope of free movement rights, third country nationals who had no prior lawful residence in a Member State before marrying a Union citizen" and to make it easier for member states to deport EU nationals for public policy or public security reasons. The extent to which the various parts of the agreement would be legally binding is complex; no part of the agreement itself changed EU law, but some parts could be enforceable in international law.

The EU had reportedly offered David Cameron a so-called "emergency brake", which would have allowed the UK to withhold social benefits to new immigrants for the first four years after they arrived; this brake could have been applied for a period of seven years. That offer was still on the table at the time of the Brexit referendum, but expired when the vote determined that the UK would leave the EU. Cameron claimed that "he could have avoided Brexit had European leaders let him control migration", according to the Financial Times. However, Angela Merkel said that the offer had not been made by the EU. Merkel stated in the German Parliament: "If you wish to have free access to the single market then you have to accept the fundamental European rights as well as obligations that come from it. This is as true for Great Britain as for anybody else."

The planned referendum was included in the Queen's Speech on 27 May 2015. It was suggested at the time that Cameron was planning to hold the referendum in October 2016, but the European Union Referendum Act 2015, which authorised it, went before the House of Commons the following day, just three weeks after the election. On the bill's second reading on 9 June, members of the House of Commons voted by 544 to 53 in favour, endorsing the principle of holding a referendum, with only the Scottish National Party voting against. In contrast to the Labour Party's position prior to the 2015 general election under Miliband, acting Labour leader Harriet Harman committed her party to supporting plans for an EU referendum by 2017.

To enable the referendum to take place, the European Union Referendum Act was passed by the Parliament of the United Kingdom. It extended to include and take legislative effect in Gibraltar, and received royal assent on 17 December 2015. The Act was, in turn, confirmed, enacted and implemented in Gibraltar by the European Union (Referendum) Act 2016 (Gibraltar), which was passed by the Gibraltar Parliament and entered into law upon receiving the assent of the Governor of Gibraltar on 28 January 2016.

The European Union Referendum Act required a referendum to be held on the question of the UK's continued membership of the European Union (EU) before the end of 2017. It did not contain any requirement for the UK Government to implement the results of the referendum. Instead, it was designed to gauge the electorate's opinion on EU membership. The referendums held in Scotland, Wales and Northern Ireland in 1997 and 1998 are examples of this type, where opinion was tested before legislation was introduced. The UK does not have constitutional provisions which would require the results of a referendum to be implemented, unlike, for example, the Republic of Ireland, where the circumstances in which a binding referendum should be held are set out in its constitution. In contrast, the legislation that provided for the referendum held on AV in May 2011 would have implemented the new system of voting without further legislation, provided that the boundary changes also provided for in the Parliamentary Voting System and Constituencies Act 2011 were also implemented. In the event, there was a substantial majority against any change. The 1975 referendum was held after the re-negotiated terms of the UK's EC membership had been agreed by all EC Member States, and the terms set out in a command paper and agreed by both Houses. Following the 2016 referendum, the High Court confirmed that the result was not legally binding, owing to the constitutional principles of parliamentary sovereignty and representative democracy, and the legislation authorising the referendum did not contain clear words to the contrary.

Research by the Electoral Commission confirmed that its recommended question "was clear and straightforward for voters, and was the most neutral wording from the range of options ... considered and tested", citing responses to its consultation by a diverse range of consultees. The proposed question was accepted by the government in September 2015, shortly before the bill's third reading. The question that appeared on ballot papers in the referendum under the Act was:

Should the United Kingdom remain a member of the European Union or leave the European Union?

with the responses to the question to be (to be marked with a single (X)):

Remain a member of the European Union
Leave the European Union

and in Welsh:

A ddylai'r Deyrnas Unedig aros yn aelod o'r Undeb Ewropeaidd neu adael yr Undeb Ewropeaidd?

with the responses (to be marked with a single (X)):

Aros yn aelod o'r Undeb Ewropeaidd
Gadael yr Undeb Ewropeaidd

The right to vote in the referendum in the United Kingdom is defined by the legislation as limited to residents of the United Kingdom who were either also Commonwealth citizens under the British Nationality Act 1948 (which include British citizens and other British nationals), or those who were also citizens of the Republic of Ireland, or both. Members of the House of Lords, who could not vote in general elections, were able to vote in the referendum. The electorate of 46,500,001 represented 70.8% of the population of 65,678,000 ( UK and Gibraltar). Other than the residents of Gibraltar, British Overseas Territories Citizens residing in the British Overseas Territories were unable to vote in the referendum.

Residents of the United Kingdom who were citizens of other EU countries were not allowed to vote unless they were citizens (or were also citizens) of the Republic of Ireland, of Malta, or of the Republic of Cyprus.

The Representation of the People Acts 1983 and 1985 , as amended, also permit certain British citizens (but not other British nationals), who had once lived in the United Kingdom, but had since and in the meantime lived outside of the United Kingdom, but for a period of no more than 15 years, to vote.

Voting on the day of the referendum was from 0700 to 2200 BST ( WEST) (0700 to 2200 CEST in Gibraltar) in some 41,000 polling stations manned by over 100,000 staff. Each polling station was specified to have no more than 2,500 registered voters.[citation needed ] Under the provisions of the Representation of the People Act 2000, postal ballots were also permitted in the referendum and were sent out to eligible voters some three weeks ahead of the vote (2 June 2016).

The minimum age for voters in the referendum was set to 18 years, in line with the Representation of the People Act, as amended. A House of Lords amendment proposing to lower the minimum age to 16 years was rejected.

Nottingham City Council emailed a Vote Leave supporter to say that the council was unable to check whether the nationality that people stated on their voting registration form was true, and hence that they simply had to assume that the information that was submitted was, indeed, correct.

Kingston upon Thames London Borough Council and the Electoral Commission stated that Jakub Pawlowski, a Polish voter in Kingston upon Thames declared himself as being British on his registration form, and hence, received a referendum polling card in the post, although he is not a UK citizen and did not have the right to receive such a polling card. The voter stated that he specified that he was a Polish citizen when registering on the electoral roll, but still had received the card in the post. The matter had been referred to the police.

3,462 EU nationals were wrongly sent postal voting cards, due to an IT issue experienced by Xpress, an electoral software supplier to a number of councils. Xpress was initially unable to confirm the exact number of those affected. The matter was resolved by the issuance of a software patch which rendered the wrongly recorded electors ineligible to vote on 23 June.

Some residents of the Isle of Man protested that they, as full British citizens under the British Nationality Act 1981 and living within the British Islands, should also have been given the opportunity to vote in the referendum, as the Isle and the Bailiwicks, although not included as if they were part of the United Kingdom for the purpose of European Union (and European Economic Area (EEA)) membership (as is the case with Gibraltar), would also have been significantly affected by the outcome and impact of the referendum.

In October 2015, Britain Stronger in Europe, a cross-party group campaigning for Britain to remain a member of the EU, was formed. There were two rival groups promoting British withdrawal from the EU that sought to become the official Leave campaign: Leave.EU (which was endorsed by most of UKIP, including Nigel Farage), and Vote Leave (endorsed by Conservative Party Eurosceptics). In January 2016, Nigel Farage and the Leave.EU campaign became part of the Grassroots Out movement, which was borne out of infighting between Vote Leave and Leave.EU campaigners. In April, the Electoral Commission announced that Britain Stronger in Europe and Vote Leave were to be designated as the official remain and leave campaigns respectively. This gave them the right to spend up to £7,000,000, a free mailshot, TV broadcasts and £600,000 in public funds. The UK Government's official position was to support the Remain campaign. Nevertheless, Cameron announced that Conservative Ministers and MPs were free to campaign in favour of remaining in the EU or leaving it, according to their conscience. This decision came after mounting pressure for a free vote for ministers. In an exception to the usual rule of cabinet collective responsibility, Cameron allowed cabinet ministers to campaign publicly for EU withdrawal. A Government-backed campaign was launched in April. On 16 June, all official national campaigning was suspended until 19 June after the Murder of Jo Cox.

After internal polls suggested that 85% of the UK population wanted more information about the referendum from the government, a leaflet was sent to every household in the UK. It contained details about why the government believed the UK should remain in the EU. This leaflet was criticised by those wanting to leave as giving the remain side an unfair advantage; it was also described as being inaccurate and a waste of taxpayers' money (it cost £9.3m in total).

The Vote Leave campaign argued that if the UK left the EU, national sovereignty would be protected, immigration controls could be imposed, and the UK would be able to sign trade deals with the rest of the world. The UK would also be able to stop membership payments to the EU every week. The Britain Stronger in Europe campaign argued that leaving the European Union would damage the UK economy, and that the status of the UK as a world influence was hinged upon its membership.

The tables list political parties with representation in the House of Commons or the House of Lords, the European Parliament, the Scottish Parliament, the Northern Ireland Assembly, the Welsh Assembly, or the Gibraltar Parliament at the time of the referendum.

Among minor parties, the Socialist Labour Party, the Communist Party, Britain First, the British National Party (BNP), Éirígí, Respect Party, Trade Unionist and Socialist Coalition (TUSC), the Social Democratic Party, Liberal Party, and Independence from Europe, and the Workers' Party of Ireland, supported leaving the EU. The Scottish Socialist Party (SSP) supported remaining in the EU. The Women's Equality Party had no official position on the issue.

The Cabinet of the United Kingdom is a body responsible for making decisions on policy and organising governmental departments; it is chaired by the Prime Minister and contains most of the government's ministerial heads. Following the announcement of the referendum in February, 23 of the 30 Cabinet ministers (including attendees) supported the UK staying in the EU. Iain Duncan Smith, in favour of leaving, resigned on 19 March and was replaced by Stephen Crabb who was in favour of remaining. Crabb was already a cabinet member, as the Secretary of State for Wales, and his replacement, Alun Cairns, was in favour of remaining, bringing the total number of pro-remain Cabinet members to 25.

Various UK multinationals have stated that they would not like the UK to leave the EU because of the uncertainty it would cause, such as Shell, BT and Vodafone, with some assessing the pros and cons of Britain exiting. The banking sector was one of the most vocal advocating to stay in the EU, with the British Bankers' Association saying: "Businesses don't like that kind of uncertainty". RBS warned of potential damage to the economy. Furthermore, HSBC and foreign-based banks JP Morgan and Deutsche Bank claim a Brexit might result in the banks' changing domicile. According to Goldman Sachs and the City of London's policy chief, all such factors could impact on the City of London's present status as a European and global market leader in financial services. In February 2016, leaders of 36 of the FTSE 100 companies, including Shell, BAE Systems, BT and Rio Tinto, officially supported staying in the EU. Moreover, 60% of the Institute of Directors and the EEF memberships supported staying.

James Dyson, founder of the Dyson company, argued in June 2016 that the introduction of tariffs would be less damaging for British exporters than the appreciation of the pound against the Euro, arguing that, because Britain ran a 100 billion pound trade deficit with the EU, tariffs could represent a significant revenue source for the Treasury. Pointing out that languages, plugs and laws differ between EU member states, Dyson said that the 28-country bloc was not a single market, and argued the fastest growing markets were outside the EU. Engineering company Rolls-Royce wrote to employees to say that it did not want the UK to leave the EU.

Surveys of large UK businesses showed a strong majority favoured the UK remaining in the EU. Small and medium-sized UK businesses were more evenly split. Polls of foreign businesses found that around half would be less likely to do business in the UK, while 1% would increase their investment in the UK. Two large car manufacturers, Ford and BMW, warned in 2013 against Brexit, suggesting it would be "devastating" for the economy. Conversely, in 2015, some other manufacturing executives told Reuters that they would not shut their plants if the UK left the EU, although future investment might be put at risk. The CEO of Vauxhall stated that a Brexit would not materially affect its business. Foreign-based Toyota CEO Akio Toyoda confirmed that, whether or not Britain left the EU, Toyota would carry on manufacturing cars in Britain as they had done before.

In the week following conclusion of the UK's renegotiation (and especially after Boris Johnson announced that he would support the UK leaving), the pound fell to a seven-year low against the dollar and economists at HSBC warned that it could drop even more. At the same time, Daragh Maher, head of HSBC, suggested that if Sterling dropped in value so would the Euro. European banking analysts also cited Brexit concerns as the reason for the Euro's decline. Immediately after a poll in June 2016 showed that the Leave campaign was 10 points ahead, the pound dropped by a further one per cent. In the same month, it was announced that the value of goods exported from the UK in April had shown a month-on-month increase of 11.2%, "the biggest rise since records started in 1998".

Uncertainty over the referendum result, together with several other factors-US interest rates rising, low commodity prices, low Eurozone growth and concerns over emerging markets such as China-contributed to a high level of stock market volatility in January and February 2016.[citation needed ] On 14 June, polls showing that a Brexit was more likely led to the FTSE 100 falling by 2%, losing £98 billion in value. After further polls suggested a move back towards Remain, the pound and the FTSE recovered.

On the day of the referendum, sterling hit a 2016 high of $1.5018 and the FTSE 100 also climbed to a 2016 high, as a new poll suggested a win for the Remain campaign. Initial results suggested a vote for 'Remain' and the value of the pound held its value. However, when the result for Sunderland was announced, it indicated an unexpected swing to 'Leave'. Subsequent results appeared to confirm this swing and sterling fell in value to $1.3777, its lowest level since 1985. On the following Monday when the markets opened, sterling fell to a new low of $1.32.

When the London Stock Exchange opened on the morning of 24 June, the FTSE 100 fell from 6338.10 to 5806.13 in the first ten minutes of trading. It recovered to 6091.27 after a further 90 minutes, before further recovering to 6162.97 by the end of the day's trading. When the markets reopened the following Monday, the FTSE 100 showed a steady decline losing over 2% by mid-afternoon. Upon opening later on the Friday after the referendum, the US Dow Jones Industrial Average dropped nearly 450 points or about 2½% in less than half an hour. The Associated Press called the sudden worldwide stock market decline a stock market crash. Investors in worldwide stock markets lost more than the equivalent of US$2 trillion on 24 June 2016, making it the worst single-day loss in history, in absolute terms. The market losses amounted to US$3 trillion by 27 June. The value of the pound sterling against the US dollar fell to a 31-year low. The UK's and the EU's sovereign debt credit rating was also lowered by Standard & Poor's.

By mid-afternoon on 27 June 2016, sterling was at a 31-year low, having fallen 11% in two trading days, and the FTSE 100 had surrendered £85 billion; however, by 29 June it had recovered all its losses since the markets closed on polling day and the value of the pound had begun to rise.

The referendum was generally well-accepted by European far right.

Marine Le Pen, the leader of the French Front national, described the possibility of a Brexit as "like the fall of the Berlin Wall" and commented that "Brexit would be marvellous - extraordinary - for all European peoples who long for freedom". A poll in France in April 2016 showed that 59% of the French people were in favour of Britain remaining in the EU.

Spanish foreign minister José García-Margallo said Spain would demand control of Gibraltar the "very next day" after a British withdrawal from the EU. Margallo also threatened to close the border with Gibraltar if Britain left the EU.

Dutch politician Geert Wilders, leader of the Party for Freedom, said that the Netherlands should follow Britain's example: "Like in the 1940s, once again Britain could help liberate Europe from another totalitarian monster, this time called 'Brussels'. Again, we could be saved by the British."

Christine Lagarde, the managing director of the International Monetary Fund, warned in February 2016 that the uncertainty over the outcome of the referendum would be bad "in and of itself" for the British economy. In response, Leave campaigner Priti Patel said a previous warning from the IMF regarding the coalition government's deficit plan for the UK was proven incorrect and that the IMF "were wrong then and are wrong now".

In October 2015, United States Trade Representative Michael Froman declared that the United States was not keen on pursuing a separate free-trade agreement (FTA) with Britain if it were to leave the EU, thus, according to The Guardian newspaper, undermining a key economic argument of proponents of those who say Britain would prosper on its own and be able to secure bilateral FTAs with trading partners. Also in October 2015, the United States Ambassador to the United Kingdom Matthew Barzun said that UK participation in NATO and the EU made each group "better and stronger" and that, while the decision to remain or leave is a choice for the British people, it was in the US interest that it remain. In April 2016, eight former US Secretaries of the Treasury, who had served both Democratic and Republican presidents, urged Britain to remain in the EU.

In July 2015, President Barack Obama confirmed the long-standing US preference for the UK to remain in the EU. Obama said: "Having the UK in the EU gives us much greater confidence about the strength of the transatlantic union, and is part of the cornerstone of the institutions built after World War II that has made the world safer and more prosperous. We want to make sure that the United Kingdom continues to have that influence." Some Conservative MPs accused U.S. President Barack Obama of interfering in the Brexit vote, with Boris Johnson calling the intervention a "piece of outrageous and exorbitant hypocrisy" and UKIP leader Nigel Farage accusing him of "monstrous interference", saying "You wouldn't expect the British Prime Minister to intervene in your presidential election, you wouldn't expect the Prime Minister to endorse one candidate or another." Obama's intervention was criticised by Republican Senator Ted Cruz as "a slap in the face of British self-determination as the president, typically, elevated an international organisation over the rights of a sovereign people", and stated that "Britain will be at the front of the line for a free trade deal with America", were Brexit to occur. More than 100 MPs from the Conservatives, Labour, UKIP and the DUP wrote a letter to the U.S. ambassador in London asking President Obama not to intervene in the Brexit vote as it had "long been the established practice not to interfere in the domestic political affairs of our allies and we hope that this will continue to be the case." Two years later, one of Obama's former aides recounted that the public intervention was made following a request by Cameron.

In November 2015, the Governor of the Bank of England Mark Carney said that the Bank of England would do what was necessary to help the UK economy if the British people voted to leave the EU. In March 2016, Carney told MPs that an EU exit was the "biggest domestic risk" to the UK economy, but that remaining a member also carried risks, related to the European Monetary Union, of which the UK is not a member. In May 2016, Carney said that a "technical recession" was one of the possible risks of the UK leaving the EU. However, Iain Duncan Smith said Carney's comment should be taken with "a pinch of salt", saying "all forecasts in the end are wrong".

In December 2015, the Bank of England published a report about the impact of immigration on wages. The report concluded that immigration put downward pressure on workers' wages, particularly low-skilled workers: a 10 percent point rise in the proportion of migrants working in low-skilled services drove down the average wages of low-skilled workers by about 2 percent. The 10 percentage point rise cited in the paper is larger than the entire rise observed since the 2004-06 period in the semi/unskilled services sector, which is about 7 percentage points.

In March 2016, Nobel prize-winning economist Joseph Stiglitz argued that he might reconsider his support for the UK remaining in the EU if the proposed Transatlantic Trade and Investment Partnership (TTIP) were to be agreed to. Stiglitz warned that under the investor-state dispute settlement provision in current drafts of the TTIP, governments risked being sued for loss of profits resulting from new regulations, including health and safety regulations to limit the use of asbestos or tobacco.

The German economist Clemens Fuest wrote that there was a liberal, free-trade bloc in the EU comprising the UK, the Netherlands, the Czech Republic, Sweden, Denmark, Ireland, Slovakia, Finland, Estonia, Latvia and Lithuania, controlling 32% of the votes in the European Council and standing in opposition to the , protectionist policies favoured by France and its allies. Germany with its 'social market' economy stands midway between the French dirigiste economic model and the British free-market economic model. From the German viewpoint, the existence of the liberal bloc allows Germany to play-off free-market Britain against dirigiste France, and that if Britain were to leave, the liberal bloc would be severely weakened, thereby allowing the French to take the EU into a much more dirigiste direction that would be unattractive from the standpoint of Berlin.

Michael Jacobs, the current director of the Commission on Economic Justice at the Institute for Public Policy Research and Mariana Mazzucato, a professor in University College London in Economics of Innovation and Public Value have found that the Brexit campaign had the tendency to blame external forces for domestic economic problems and have argued that the problems within the economy wasn't due to 'unstoppable forces of globalisation' but rather the result of active political and business decisions. Instead, they claim that orthodox economic theory has guided poor economic policy such as investment and that has been the cause of problems within the British economy.

A poll of lawyers conducted by a legal recruiter in late May 2016 suggested 57% of lawyers wanted to remain in the EU.

During a Treasury Committee shortly following the vote, economic experts generally agreed that the leave vote would be detrimental to the UK economy.

Michael Dougan, Professor of European Law and Jean Monnet Chair in EU Law at the University of Liverpool and a constitutional lawyer, described the Leave campaign as "one of the most dishonest political campaigns this country [the UK] has ever seen", for using arguments based on constitutional law that he said were readily demonstrable as false.

Simon Stevens, head of NHS England, warned in May 2016 that a recession following a Brexit would be "very dangerous" for the National Health Service, saying that "when the British economy sneezes, the NHS catches a cold." Three-quarters of a sample of NHS leaders agreed that leaving the EU would have a negative effect on the NHS as a whole. In particular, eight out of 10 respondents felt that leaving the EU would have a negative impact on trusts' ability to recruit health and social care staff. In April 2016, a group of nearly 200 health professionals and researchers warned that the NHS would be in jeopardy if Britain left the European Union. The leave campaign reacted by saying more money would be available to be spent on the NHS if the UK left the EU.

Guidelines by the Charity Commission for England and Wales that forbid political activity for registered charities have limited UK health organizations' commentary on EU poll, according to anonymous sources consulted by the Lancet. According to Simon Wessely, head of psychological medicine at the Institute of Psychiatry, King's College London - neither a special revision of the guidelines from 7 March 2016, nor Cameron's encouragement have made health organisations, willing to speak out. The Genetic Alliance UK the Royal College of Midwives the Association of the British Pharmaceutical Industry and the Chief Executive of the National Health Service had all stated pro-remain positions by early June 2016.

A June 2016 survey of British fishermen found that 92% intended to vote to leave the EU. The EU's Common Fisheries Policy was mentioned as a central reason for their near-unanimity. More than three-quarters believed that they would be able to land more fish, and 93% stated that leaving the EU would benefit the fishing industry.

In May 2016, more than 300 historians wrote in a joint letter to The Guardian that Britain could play a bigger role in the world as part of the EU. They said: "As historians of Britain and of Europe, we believe that Britain has had in the past, and will have in the future, an irreplaceable role to play in Europe." On the other hand, many historians argued in favour of leaving, seeing it as a return to self-sovereignty.

Following David Cameron's announcement of an EU referendum, British think tank the Institute of Economic Affairs (IEA) announced in July 2013 a competition to find the best plan for a UK exit from the European Union, declaring that a departure is a "real possibility" after the 2015 general election. Iain Mansfield, a Cambridge graduate and UKTI diplomat, submitted the winning thesis: A Blueprint for Britain: Openness not Isolation. Mansfield's submission focused on addressing both trade and regulatory issues with EU member states as well as other global trading partners.

Opinion polls from 2010 onwards suggested the British public were relatively evenly divided on the question, with opposition to EU membership peaking in November 2012 at 56% compared with 30% who prefer to remain in, while in June 2015 those in favour of Britain remaining in the EU reached 43% versus those opposed 36%. The largest ever poll (of 20,000 people, in March 2014) showed the public evenly split on the issue, with 41% in favour of withdrawal, 41% in favour of membership, and 18% undecided. However, when asked how they would vote if Britain renegotiated the terms of its membership of the EU, and the UK Government stated that British interests had been satisfactorily protected, more than 50% indicated that they would vote for Britain to stay in.

Analysis of polling suggested that young voters tended to support remaining in the EU, whereas those older tend to support leaving, but there was no gender split in attitudes. In February 2016 YouGov also found that euroscepticism correlated with people of lower income and that "higher social grades are more clearly in favour of remaining in the EU", but noted that euroscepticism also had strongholds in "the more wealthy, Tory shires". Scotland, Wales and many English urban areas with large student populations were more pro-EU. Big business was broadly behind remaining in the EU, though the situation among smaller companies was less clear-cut. In polls of economists, lawyers, and scientists, clear majorities saw the UK's membership of the EU as beneficial. On the day of the referendum, the bookmaker Ladbrokes offered odds of 6/1 against the UK leaving the EU. Meanwhile, spread betting firm Spreadex offered a Leave Vote Share spread of 45-46, a Remain Vote Share spread of 53.5-54.5, and a Remain Binary Index spread of 80-84.7, where victory for Remain would makeup to 100 and a defeat 0.

The number of jobs lost or gained by a withdrawal was a dominant issue; the BBC's outline of issues warned that a precise figure was difficult to find. The Leave campaign argued that a reduction in red tape associated with EU regulations would create more jobs and that small to medium-sized companies who trade domestically would be the biggest beneficiaries. Those arguing to remain in the EU, claimed that millions of jobs would be lost. The EU's importance as a trading partner and the outcome of its trade status if it left was a disputed issue. Whereas those wanting to stay cited that most of the UK's trade was made with the EU, those arguing to leave say that its trade was not as important as it used to be. Scenarios of the economic outlook for the country if it left the EU were generally negative. The United Kingdom also paid more into the EU budget than it received.

Citizens of EU countries, including the United Kingdom, have the right to travel, live and work within other EU countries, as free movement is one of the four founding principles of the EU. Campaigners for remaining said that EU immigration had positive impacts on the UK's economy, citing that the country's growth forecasts were partly based upon continued high levels of net immigration. The Office for Budget Responsibility also claimed that taxes from immigrants boost public funding. A recent[when? ] academic paper suggests that migration from Eastern Europe put pressure on wage growth at the lower end of the wage distribution, while at the same time increasing pressures on public services and housing. The Leave campaign believed reduced immigration would ease pressure in public services such as schools and hospitals, as well as giving British workers more jobs and higher wages. According to official Office for National Statistics data, net migration in 2015 was 333,000, which was the second highest level on record, far above David Cameron's target of tens of thousands. Net migration from the EU was 184,000. The figures also showed that 77,000 EU migrants who came to Britain were looking for work.

After the announcement had been made as to the outcome of the referendum, Rowena Mason, political correspondent for The Guardian offered the following assessment: "Polling suggests discontent with the scale of migration to the UK has been the biggest factor pushing Britons to vote out, with the contest turning into a referendum on whether people are happy to accept free movement in return for free trade." A columnist for , Philip Collins, went a step further in his analysis: "This was a referendum about immigration disguised as a referendum about the European Union."

The Conservative MEP ( Member of the European Parliament) representing South East England, Daniel Hannan, predicted on the BBC programme that the level of immigration would remain high after Brexit. "Frankly, if people watching think that they have voted and there is now going to be zero immigration from the EU, they are going to be disappointed. ... you will look in vain for anything that the Leave campaign said at any point that ever suggested there would ever be any kind of border closure or drawing up of the drawbridge."

The possibility that the UK's smaller constituent countries could vote to remain within the EU but find themselves withdrawn from the EU led to discussion about the risk to the unity of the United Kingdom. Scotland's First Minister, Nicola Sturgeon, made it clear that she believed that a second independence referendum would "almost certainly" be demanded by Scots if the UK voted to leave the EU but Scotland did not. The First Minister of Wales, Carwyn Jones, said: "If Wales votes to remain in [the EU] but the UK votes to leave, there will be a... constitutional crisis. The UK cannot possibly continue in its present form if England votes to leave and everyone else votes to stay".

There was concern that the Transatlantic Trade and Investment Partnership (TTIP), a proposed trade agreement between the United States and the EU, would be a threat to the public services of EU member states. Jeremy Corbyn, on the Remain side, said that he pledged to veto TTIP in Government. John Mills, on the Leave side, said that the UK could not veto TTIP because trade pacts were decided by Qualified Majority Voting in the European Council.

Debates, question and answer sessions and interviews

A debate was held by The Guardian on 15 March 2016, featuring the leader of UKIP Nigel Farage, Conservative MP Andrea Leadsom, the leader of Labour's "yes" campaign Alan Johnson and former leader of the Liberal Democrats Nick Clegg.

Earlier in the campaign, on 11 January, a debate took place between Nigel Farage and Carwyn Jones, who was at the time the First Minister of Wales and leader of the Welsh Labour Party. Reluctance to have Conservative Party members argue against one another has seen some debates split, with Leave and Remain candidates interviewed separately.

The Spectator held a debate hosted by Andrew Neil on 26 April, which featured Nick Clegg, Liz Kendall and Chuka Umunna arguing for a remain vote, and Nigel Farage, Daniel Hannan and Labour MP Kate Hoey arguing for a leave vote. The Daily Express held a debate on 3 June, featuring Nigel Farage, Kate Hoey and Conservative MP Jacob Rees-Mogg debating Labour MPs Siobhain McDonagh and Chuka Umunna and businessman Richard Reed, co-founder of Innocent drinks. Andrew Neil presented four interviews ahead of the referendum. The interviewees were Hilary Benn, George Osborne, Nigel Farage and Iain Duncan Smith on 6, 8, 10 and 17 May, respectively.

The scheduled debates and question sessions included a number of question and answer sessions with various campaigners. and a debate on ITV held on 9 June that included Angela Eagle, Amber Rudd and Nicola Sturgeon, Boris Johnson, Andrea Leadsom, and Gisela Stuart.

EU Referendum: The Great Debate was held at Wembley Arena on 21 June and hosted by David Dimbleby, Mishal Husain and Emily Maitlis in front of an audience of 6,000. The audience was split evenly between both sides. Sadiq Khan, Ruth Davidson and Frances O'Grady appeared for Remain. Leave was represented by the same trio as the ITV debate on 9 June (Johnson, Leadsom and Stuart). Europe: The Final Debate with Jeremy Paxman was held the following day on Channel 4.

Voting, voting areas and counts

Voting took place from 0700 BST (WEST) until 2200 BST (Same hours CEST in Gibraltar) in 41,000 polling stations across 382 voting areas, with each polling station limited to a maximum of 2,500 voters. The referendum was held across all four countries of the United Kingdom, as well as in Gibraltar, as a single majority vote. The 382 voting areas were grouped into twelve regional counts and there was separate declarations for each of the regional counts.

In England, as happened in the 2011 AV referendum, the 326 districts were used as the local voting areas and the returns of these then fed into nine English regional counts. In Scotland the local voting areas were the 32 local councils which then fed their results into the Scottish national count, and in Wales the 22 local councils were their local voting areas before the results were then fed into the Welsh national count. Northern Ireland, as was the case in the AV referendum, was a single voting and national count area although local totals by Westminster parliamentary constituency areas were announced.

Gibraltar was a single voting area, but as Gibraltar was to be treated and included as if it were a part of South West England, its results was included together with the South West England regional count.

The following table shows the breakdown of the voting areas and regional counts that were used for the referendum.

Country

Counts and voting areas

United Kingdom
(together with Gibraltar, treated as if it were a [full] part of the United Kingdom)

Referendum declaration;
12 regional counts;
382 voting areas (381 in the UK, 1 in Gibraltar)

Constituent countries

Counts and voting areas

England
(together with Gibraltar, treated as if it were a part of South West England)

9 regional counts;
327 voting areas (326 in the UK, 1 in Gibraltar)

Northern Ireland

National count and single voting area;
18 parliamentary constituency totals

On 16 June 2016, a pro-EU Labour MP, Jo Cox, was shot and killed in Birstall, West Yorkshire the week before the referendum by a man calling himself "death to traitors, freedom for Britain", and a man who intervened was injured. The two rival official campaigns agreed to suspend their activities as a mark of respect to Cox. After the referendum, evidence emerged that Leave.EU had continued to put out advertising the day after Jo Cox's murder. David Cameron cancelled a planned rally in Gibraltar supporting British EU membership. Campaigning resumed on 19 June. Polling officials in the Yorkshire and Humber region also halted counting of the referendum ballots on the evening of 23 June to observe a minute of silence. The Conservative Party, Liberal Democrats, UK Independence Party and the Green Party all announced that they would not contest the ensuing by-election in Cox's constituency as a mark of respect.

The final result was announced on Friday 24 June 2016 at 07:20 BST by then- Electoral Commission Chairwoman Jenny Watson at Manchester Town Hall after all 382 voting areas and the twelve UK regions had declared their totals. With a national turnout of 72% across the United Kingdom and Gibraltar (representing 33,577,342 people), at least 16,788,672 votes were required to win a majority. The electorate voted to "Leave the European Union", with a majority of 1,269,501 votes (3.8%) over those who voted "Remain a member of the European Union". The national turnout of 72% was the highest ever for a UK-wide referendum, and the highest for any national vote since the 1992 general election. With the national turnout of 72% being the highest for a UK-wide referendum, this roughly calculates to 38% of the entire UK population wanting to leave the European Union and roughly 35% wanting to remain in the European Union.

Voting figures from local referendum counts and ward-level data (using local demographic information collected in the 2011 census) suggests that Leave votes were strongly correlated with lower qualifications and higher age. The data were obtained from about one in nine wards in England and Wales, with very little information from Scotland and none from Northern Ireland. A YouGov survey reported similar findings; these are summarised in the charts below.

Researchers based at the University of Warwick found that areas with "deprivation in terms of education, income and employment were more likely to vote Leave". The Leave vote tended to be greater in areas which had lower incomes and high unemployment, a strong tradition of manufacturing employment, and in which the population had fewer qualifications. It also tended to be greater where there was a large flow of Eastern European migrants (mainly low-skilled workers) into areas with a large share of native low-skilled workers. Those in lower social grades (especially the 'working class') were more likely to vote Leave, while those in higher social grades (especially the ' upper middle class') were more likely to vote Remain.

Polls by Ipsos-Mori, YouGov and Lord Ashcroft all assert that 70-75% of under 25s voted 'remain'. Additionally according to YouGov, only 54% of 25-49-year olds voted 'remain', whilst 60% of 50-64-year olds and 64% of over 65s voted 'leave', meaning that the support for 'remain' was not as strong outside the youngest demographic. Also, YouGov found that around 87% of under-25s in 2018 would now vote to stay in the EU. Opinion polling by Lord Ashcroft Polls found that Leave voters believed leaving the EU was "more likely to bring about a better immigration system, improved border controls, a fairer welfare system, better quality of life, and the ability to control our own laws", while Remain voters believed EU membership "would be better for the economy, international investment, and the UK's influence in the world". Immigration is thought to be a particular worry for older people that voted Leave, who consider it a potential threat to national identity and culture. The polling found that the main reasons people had voted Leave were "the principle that decisions about the UK should be taken in the UK", and that leaving "offered the best chance for the UK to regain control over immigration and its own borders". The main reason people voted Remain was that "the risks of voting to leave the EU looked too great when it came to things like the economy, jobs and prices".

One analysis suggests that in contrast to the general correlation between age and likelihood of having voted to leave the EU, those who experienced the majority of their formative period (between the ages of 15 to 25) during the Second World War are more likely to oppose Brexit than the rest of the over-65 age group,[failed verification ] for they are more likely to associate the EU with bringing peace.

EU referendum vote by age and education, based on a YouGov survey.[317][318]

EU referendum leave vote versus educational attainment (Highest level of qualification for Level 4 qualifications and above) by area for England and Wales.[313][failed verification ]

The foreign ministry of Ireland stated on 24 June 2016 that the number of applications from the UK for Irish passports had increased significantly. Enquiries about passports also increased: the Irish Embassy in London reported 4,000 a day immediately after the vote to leave, in comparison with the normal 200 a day. Other EU nations also had increases in requests for passports from British citizens, including France and Belgium.

There were more than a hundred reports of racist abuse and hate crime in the immediate aftermath of the referendum, with many citing the plan to leave the European Union. It was claimed that there had been a 57% increase in hate crime following the referendum vote. However, the National Police Chiefs Council Lead for Hate Crime, Assistant Chief Constable Mark Hamilton, said: "This should not be read as a national increase in hate crime of 57% but an increase in reporting through one mechanism". Others[who? ] claimed that the numbers did not necessarily reflect "any objective spread in modern Britain", but that the apparent spike in hate crime was the result of the subjective definition of the crime and that the police being incentivised "to find hatred". In the UK, crimes are recorded as hate crimes based on the perception of the victim. Assistant Chief Constable Maurice Mason of the Essex police explained that "If the person feels it's a hate crime it'll get recorded as a hate crime", saying that his county's "50% increase in reported hate crimes" post referendum were "low level matters, some members of the public complaining about Nigel Farage or whatever ... that'll get recorded as a hate crime".

On 24 June 2016, a Polish school in Cambridgeshire was vandalised with a sign reading "Leave the EU. No more Polish vermin". Following the referendum result, similar signs were distributed outside homes and schools in Huntingdon, with some left on the cars of Polish residents collecting their children from school. On 26 June, the London office of the Polish Social and Cultural Association was vandalised with graffiti that was initially characterised as a racist hate crime. However it later emerged that the graffiti, which said, 'F*** you OMP' may have been directed at OMP, a eurosceptic Polish think tank that had issued a statement congratulating Britain on its Brexit vote. This incident was also unsuccessfully investigated by the police. In Wales, a Muslim woman was told to leave after the referendum, even though she had been born and raised in the United Kingdom. Other reports of racism occurred as perceived foreigners were targeted in supermarkets, on buses and on street corners, and told to leave the country immediately. All such incidents were widely condemned by politicians and religious leaders.

The killing of a Polish national Arkadiusz Jozwik in Harlow, Essex in August 2016 was widely, but falsely, speculated to be linked to the Leave result. A BBC Newsnight report by John Sweeney showed an interview with someone who knew the victim who then claimed that Leading Brexit campaigner Nigel Farage had "blood on his hands". It was mentioned in the European Parliament by the EU Commissioner Jean-Claude Juncker who said: "We Europeans can never accept Polish workers being harassed, beaten up or even murdered on the streets of Harlow." A teenager was subsequently convicted of manslaughter and sentenced to three and a half years in a young offender institution but the trial did not conclude that the altercation resulting in Jozwik's death was a hate crime. Nigel Farage criticised the "sensationalist" reporting of the issue and complained to the BBC about broadcasting the "blood on his hands" remark.

Within hours of the result's announcement, a petition, calling for a second referendum to be held in the event that a result was secured with less than 60% of the vote and on a turnout of less than 75%, attracted tens of thousands of new signatures. The petition had actually been initiated by someone favouring an exit from the EU, one William Oliver Healey of the English Democrats on 24 May 2016, when the Remain faction had been leading in the polls, and had received 22 signatures prior to the referendum result being declared. On 26 June, Healey made it clear on his Facebook page that the petition had actually been started to favour an exit from the EU and that he was a strong supporter of the Vote Leave and Grassroots Out campaigns. Healey also claimed that the petition had been "hijacked by the remain campaign". English Democrats chairman Robin Tilbrook suggested those who had signed the petition were experiencing "sour grapes" about the result of the referendum. It attracted more than four million signatures, meaning it was considered for debate in Parliament; this debate took place on 5 September 2016.

On 27 June 2016, David Cameron's spokesperson stated that holding another vote on Britain's membership of the European Union was "not remotely on the cards". Home Secretary Theresa May made the following comment when announcing her candidacy to replace Cameron as Conservative leader (and hence as Prime Minister) on 30 June: "The campaign was fought ... and the public gave their verdict. There must be no attempts to remain inside the EU ... and no second referendum. ... Brexit means Brexit." The petition was rejected by the government on 9 July. Its response said that the referendum vote "must be respected" and that the government "must now prepare for the process to exit the EU".

On 24 June, the Conservative Party leader and Prime Minister David Cameron announced that he would resign by October because the Leave campaign had been successful in the referendum. The leadership election was scheduled for 9 September. The new leader would be in place before the autumn conference set to begin on 2 October. Unexpectedly, Boris Johnson, who had been a leading figure for Vote Leave, declined to be nominated shortly before the deadline for nominations. On 13 July, almost three weeks after the vote, Theresa May succeeded Cameron as Prime Minister.

The Labour Party leader Jeremy Corbyn faced growing criticism from his party, which had supported remaining within the EU, for poor campaigning. On 26 June 2016, Corbyn sacked Hilary Benn (the shadow foreign secretary) for apparently leading a coup against him. This led to a string of Labour MPs quickly resigning their roles in the party. A no confidence motion was held on 28 June; Corbyn lost the motion with more than 80% (172) of MPs voting against him. Corbyn responded with a statement that the motion had no "constitutional legitimacy" and that he intended to continue as the elected leader. The vote did not require the party to call a leadership election but after Angela Eagle and Owen Smith launched leadership challenges to Corbyn, the 2016 Labour Party leadership election was triggered. Corbyn won the contest, with a larger share of the vote than in 2015.

On 4 July 2016 Nigel Farage stood down as the leader of UKIP, stating that his "political ambition has been achieved" following the result of the referendum. Following the resignation of the elected party leader Diane James, Farage became an interim leader on 5 October 2016. He was succeeded by Paul Nuttall on 28 November 2016.

Scottish First Minister Nicola Sturgeon said on 24 June 2016 that it was "clear that the people of Scotland see their future as part of the European Union" and that Scotland had "spoken decisively" with a "strong, unequivocal" vote to remain in the European Union. On the same day, the Scottish Government announced that officials would plan for a "highly likely" second referendum on independence from the United Kingdom and start preparing legislation to that effect. Former First Minister Alex Salmond said that the vote was a "significant and material change" in Scotland's position within the United Kingdom, and that he was certain his party would implement its manifesto on holding a second referendum. Sturgeon said she will communicate to all EU member states that "Scotland has voted to stay in the EU and I intend to discuss all options for doing so."

On the morning of 24 June, the pound sterling fell to its lowest level against the US dollar since 1985. The drop over the day was 8% - the biggest one-day fall in the pound since the introduction of floating exchange rates following the collapse of the Bretton Woods system in 1971.

The referendum result also had an immediate impact on some other countries. The South African rand experienced its largest single-day decline since 2008, dropping over 8% against the United States dollar. Other countries affected included Canada, whose stock exchange fell 1.70%, Nigeria and Kenya.

On 28 June 2016, former governor of Bank of England Mervyn King said that current governor Mark Carney would help to guide Britain through the next few months, adding that the BOE would undoubtedly lower the temperature of the post-referendum uncertainty, and that British citizens should keep calm, wait and see.

On 5 January 2017, Andy Haldane, chief economist and the executive director of monetary analysis and statistics at the Bank of England, admitted that the bank's forecasts (predicting an economic downturn should the referendum favour Brexit) had proved inaccurate given the subsequent strong market performance. He stated that the bank's models "were rather narrow and fragile [and] ill-equipped to making sense of behaviours that were deeply irrational" and said that his "profession is to some degree in crisis" due to this and the unforeseen 2007-2008 crisis.

The BBC, ITV and Sky News all provided live coverage of the counts and the reaction to the result. The BBC simulcast their domestic coverage on the BBC World News Channel, BBC One and the BBC News Channel which was presented by David Dimbleby, Laura Kuenssberg and John Curtice. ITV's coverage was presented by Tom Bradby, Robert Peston and Allegra Stratton.

The BBC called the referendum result for Leave with its projected forecast at 04:40 BST on 24 June. David Dimbleby announced it with the words:

Well, at twenty minutes to five, we can now say the decision taken in 1975 by this country to join the Common Market has been reversed by this referendum to leave the EU. We are absolutely clear now that there is no way that the Remain side can win. It looks as if the gap is going to be something like 52 to 48, so a four-point lead for leaving the EU, and that is the result of this referendum, which has been preceded by weeks and months of argument and dispute and all the rest of it. The British people have spoken and the answer is: we're out!

(The remark about 1975 was technically incorrect: the UK had joined the Common Market in 1973 and the 1975 referendum was on whether to remain in it.)

In February 2017, the Electoral Commission announced that it was investigating the spending of Stronger in and Vote Leave, along with smaller parties, as they had not submitted all the necessary invoices, receipts, or details to back up their accounts. In April 2017, the Commission specified that 'there were reasonable grounds to suspect that potential offences under the law may have occurred' in relation to Leave.EU.

On 4 March 2017, the Information Commissioner's Office also reported that it was 'conducting a wide assessment of the data-protection risks arising from the use of data analytics, including for political purposes' in relation to the Brexit campaign. It was specified that among the organisations to be investigated was Cambridge Analytica and its relationship with the Leave.EU campaign.

In May 2017, The Irish Times reported that £425,622 donated by the Constitutional Research Council to the Democratic Unionist Party for spending during the referendum may have originated in Saudi Arabia.

In November 2017, the Electoral Commission said that it was investigating allegations that Arron Banks, an insurance businessman and the largest single financial supporter of Brexit, violated campaign spending laws. The commission's investigation focuses on both Banks and Better for the Country Limited, a company of which Banks is a director and majority shareholder. The company donated £2.4 million to groups supporting British withdrawal from the EU. The investigation began after the Commission found "initial grounds to suspect breaches of electoral law". The Commission specifically seeks to determine "whether or not Mr Banks was the true source of loans reported by a referendum campaigner in his name" and "whether or not Better for the Country Limited was the true source of donations made to referendum campaigners in its name, or if it was acting as an agent".

In December 2017, the Electoral Commission announced several fines related to breaches of campaign finance rules during the referendum campaign. The Liberal Democrats were fined £18,000 and Open Britain (formerly Britain Stronger in Europe) paid £1,250 in fines. The maximum possible fine was £20,000.

In May 2018, the Electoral Commission fined Leave.EU £70,000 for unlawfully overspending by a minimum of £77,380 - exceeding the statutory spending limit by more than 10%, inaccurately reporting three loans it had received from Aaron Banks totalling £6 million including "a lack of transparency and incorrect reporting around who provided the loans, the dates the loans were entered into, the repayment date and the interest rate", and failing to provide the required invoices for "97 payments of over £200, totalling £80,224". The Electoral Commission's director of political finance and regulation and legal counsel said that the "level of fine we have imposed has been constrained by the cap on the commission's fines". In the same month, the Electoral Commission issued a £2,000 fine to the pro-EU campaign group Best for Our Future Limited; it also fined Unison £1,500 for inaccurately reporting a donation to Best for Our Future and failing to pay an invoice; and it fined GMB £500 for inaccurately reporting a donation to Best for Our Future.

In July 2018, the Electoral Commission fined Vote Leave £61,000 for not declaring £675,000 incurred under a common plan with BeLeave, unlawfully overspending by £449,079, inaccurately reporting 43 items of spending totalling £236,501, failing to provide the required invoices for "8 payments of over £200, totalling £12,850", and failing to comply with an investigation notice issued by the commission. Darren Grimes representing BeLeave was fined £20,000, the maximum permitted individual fine, for exceeding its spending limit as an unregistered campaigner by more than £660,000 and delivering an inaccurate and incomplete spending return. Veterans for Britain was also fined £250 for inaccurately reporting a donation it received from Vote Leave. The Electoral Commission referred the matter to the police. On 14 September 2018, following a High Court of Justice case, the court found that Vote Leave had received incorrect advice from the UK Electoral Commission, but confirmed that the overspending had been illegal. Vote Leave subsequently said they would not have paid it without the advice.

In February 2019, the Digital, Culture, Media and Sport Select Committee's 18-month investigation into disinformation and fake news published its final report, calling for and inquiry to establish, in relation to the referendum, "what actually happened with regard to foreign influence, disinformation, funding, voter manipulation, and the sharing of data, so that appropriate changes to the law can be made and lessons can be learnt for future elections and referenda".

In the run-up to the Brexit referendum, Russian President Vladimir Putin refrained from taking a public position on Brexit, but Prime Minister David Cameron suggested that Russia "might be happy" with a positive Brexit vote, while the Remain campaign accused the Kremlin of secretly backing a "Leave" vote in the referendum. Russian Foreign Ministry spokesperson Maria Zakharova denied these allegations, saying that "Russia is blamed for everything. Not only in the UK but all over the world. (...) But Russia has nothing to do with Brexit at all. We're not involved in this process." Steve Rosenberg, the Moscow correspondent for BBC News, suggested on 26 June 2016 that the Russian government stood to gain from Brexit in several ways: (1) enabling Russian state media "to contrast post-referendum upheaval and uncertainty abroad with a picture of 'stability' back home and images of a 'strong' President Putin at the helm" in a way that bolstered the ruling United Russia party; (2) to place the value of the British pound under pressure and thereby exact retaliation for sanctions against Russia imposed after its occupation of Crimea; (3) to "make the European Union more friendly towards Russia" in the absence of British membership; and (4) to force the resignation of Cameron, who had been critical of Russian actions. After the referendum result Putin said that Brexit brought "positives and negatives".

In December 2016, MP Ben Bradshaw speculated in Parliament that Russia may have interfered in the referendum. In February 2017, he called on the GCHQ intelligence service to reveal the information it had on Russian interference. In April 2017, the House of Commons Public Administration and Constitutional Affairs Select Committee (PACAC) issued a report suggesting that there were technical indications that a June 2016 crash of the voter-registration website was caused by a distributed denial-of-service attack using botnets. The Cabinet Office, in response, stated that it did not believe that "malign intervention" had caused the crash, and instead attributed the crash "to a spike in users just before the registration deadline".

In October 2017, a study by researchers at City, University of London was published in the journal Social Science Computer Review. The article identified 13,493 Twitter accounts that posted a total of about 65,000 messages in the last four weeks of the Brexit referendum campaign, the vast majority campaigning for a "Leave" vote; they were deleted shortly after the referendum. A further 26,538 Twitter accounts suddenly changed their username. The research findings "raised questions about the possibility that a coordinated 'bot army' was deployed, and also about the possibility that Twitter itself may have detected and removed them without disclosing the manipulation".

In November 2017, the Electoral Commission told that it had launched an inquiry to "examine the growing role of social media in election campaigns amid concerns from the intelligence and security agencies that Russia is trying to destabilise the democratic process in Britain". The commission was in contact with Facebook and Twitter as part of the inquiry.

On 10 June 2018, The Guardian reported that investigators from The Observer had seen evidence that Leave.EU funder Arron Banks had met Russian officials "multiple times" from 2015 to 2017 and had discussed "a multibillion dollar opportunity to buy Russian goldmines".

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19. ^ "86% of international businesses surveyed believe the UK should remain within the EU - says ICC United Kingdom" (PDF). iccwbo.uk. United Kingdom office of International Chamber of Commerce. 12 April 2016. Archived from the original (PDF) on 23 December 2016.

20. ^ Cunningham, Tara; Davidson, Lauren (27 June 2016). "FTSE 100 surrenders £85bn in two days, pound slides and banking stocks plunge in Brexit aftermath". The Daily Telegraph. FTSE 100 surrenders £85bn in two days, pound slides and banking stocks plunge in Brexit aftermath

21. ^ EU referendum: Swedish foreign minister warns Brexit 'could cause break-up of European Union' L. Dearden, The Independent (London), 11 June 2016

22. ^ "'Monstrous interference': UK pols furious at Obama's plan to intervene in EU debate". Fox News Channel. 22 April 2016.

23. ^ Olli Smith (24 March 2016). "'Time to GO': Trump gives Brexit blessing as he blames 'crazy migration' for EU collapse". Daily Express.

24. ^ Worley, Will (18 June 2016). "EU referendum: Vladimir Putin says David Cameron called vote 'to blackmail Europe'". The Independent.

25. ^ The impact of immigration on occupational wages: evidence from Britain Archived 7 June 2016 at the Wayback Machine S. Nickell and J. Saleheen, Staff Working Paper No. 574, Bank of England (2015)

26. EU referendum: UK could be better off leaving if TTIP passes, Joseph Stiglitz says, H. Sheffield, The Independent, 2 March 2016

27. ^ Dougan, Michael (30 June 2016). Professor Michael Dougan assesses UK's position following vote to leave the EU (Youtube). Liverpool: University of Liverpool, School of Law and Social Justice. Event occurs at 01:18. I really do have no hesitation whatsoever in concluding that Leave conducted one of the most dishonest political campaigns this country has ever seen.

28. ^ Barbara Casassus (4 June 2016). "Guidelines cause UK health charities to be silent on Brexit". The Lancet. 387 (10035): 2277-2278. doi:10.1016/S0140-6736(16)30714-0. PMID 27302254.

# data[].attributes.attachment_link.title
2016 United Kingdom European Union membership referendum

# data[].attributes.attachment_link.description
United Kingdom European Union membership referendum Should the United Kingdom remain a member of the European Union or leave the European Union? Location United Kingdom (pop. 65.65m)[1] and Gibraltar (pop.

# data[].attributes.body
https://www.forbes.com/sites/johnmauldin/2016/07/05/3-reasons-brits-voted-for-brexit/

-Economics
Opponents of the EU argued that it is a dysfunctional economic entity. The EU failed to address the economic problems that had been developing since 2008. For example, 20% unemployment in southern Europe

-Sovereignty
Many who oppose the EU believe these institutions no longer serve a purpose. Not only that, these organizations take control away from individual nations. Mistrust and fear of losing control made Brexit a reasonable solution to them.

-Political Elitism
The “leave” voters rejected both the Conservative and Labour parties. Both parties had endorsed remaining with the EU and saw many of their members go into opposition on the issue.

Ultimately, it was a three-way struggle. Two established parties wanted to remain in the EU, and a third faction, drawn from both parties, opposed it. People in this third group saw both of the establishment parties as hostile to their interests.

-Immigration

# data[].attributes.attachment_link.readable_text
The British voted to leave the European Union. Even at only 52%, Brexit couldn't have been imagined 10 years ago.

This fragmentation has been evident throughout Europe ( read more in my free special report on Brexit), but it's the first case of a nation actually deciding to leave. I doubt that it's the last.

Now we should try to understand why the majority of Brits favored an exit from the EU and learn lessons. There are three main factors that led to this outpouring of votes to leave.
Economics
The first was simple.

Opponents of the EU argued that it is a dysfunctional economic entity. The EU failed to address the economic problems that had been developing since 2008... for example, 20% unemployment in southern Europe.

The difference between the lives of southern Europeans and Germans-who enjoy 4.2% unemployment-is profound. Europe as a whole has stagnated economically.

The argument for remaining in the EU was that the alternative was economic disaster. However, staying in a stagnated organization to solve British problems seemed shortsighted and made little sense to opponents.

They believed that remaining in the European Union would make Britain follow Europe's lead.

Obviously, they didn't think that Europe would throw up trade barriers against Britain. The UK is Germany's third most important export target. The last thing Germany wants is a trade war with Britain.

Similarly, the threat that London's banks would decamp for Frankfurt is logistically implausible. Clients from around the world enjoy visiting London, and in finance, it's the clients that matter.

The European Union didn't create the existing financial relationships. Britain's financial role goes back almost two centuries. The EU is a system that aligns with financial reality. It does not create it.

If London's banks were to move to Frankfurt, New York would become a unique magnet. In the end, the Europeans need a financial center in London. They will not lock it out.
Sovereignty
The second reason for Brexit is the rise of nationalism across the world.

There's a growing distrust of multinational financial, trade, and defense organizations created after World War II. The EU, the , and NATO are good examples of this.

Many who oppose the EU believe these institutions no longer serve a purpose. Not only that, these organizations take control away from individual nations. Mistrust and fear of losing control made Brexit a reasonable solution to them.

But for the supporters of the EU, such organizations are self-evidently valuable. They may need to be tweaked but not abandoned.

The immigration crisis in Europe was a trigger. Some EU leaders argued that aiding the refugees was a moral obligation. But EU opponents saw immigration as a national issue, as it affected the internal life of the country. Steering clear of this issue was an important driver for the "leave" vote.

The EU doesn't understand the power of nationalism. It attempts to retain nationality as a cultural right. On the other hand, it deprives individual nations of the power to make many decisions.

This may have worked before 2008, but it has become increasingly difficult to accept.
Political Elitism
Finally, the political leadership of Britain faced a profound loss. The "leave" voters rejected both the Conservative and Labour parties. Both parties had endorsed remaining with the EU and saw many of their members go into opposition on the issue.

Ultimately, it was a three-way struggle. Two established parties wanted to remain in the EU, and a third faction, drawn from both parties, opposed it. People in this third group saw both of the establishment parties as hostile to their interests.

This should be considered in the broader sense.

The possibility of Brexit frightened financial markets. They said so loudly. What they did not grasp was the degree to which they had lost legitimacy in 2008.

Most "leave" supporters believed that the financial industry's recklessness and incompetence had created a disaster for many. Besides, they saw no benefit to themselves in the success of the financial industry... even though it wasn't true.

It's vital to understand that Brexit was a vote against the British elite. Voters thought politicians, business leaders, and intellectuals had lost their right to control the system.

Voters thought the elite had contempt for their values-for their nationalism and interests.

This is not a new phenomenon in Europe. This is not a British phenomenon, either. It is something that is sweeping Europe and China. And with the rise of Donald Trump, it's also present in the United States.

Trump's entire strategy is to attack both the Democratic and Republican leadership... and the elite who have contempt for the nationalism and moral principles of those beneath them.

It's a shift in politics that the West is undergoing. Now, it's in London.

Free Special Report: How Brexit Will Affect the UK, Europe, and the U.S.

Get this free special report from Geopolitical Futures founder and acclaimed intelligence expert George Friedman to uncover the truth about Brexit -and the devastating fallout we can expect to see worldwide.

# data[].attributes.attachment_link.description
A 'Vote Leave' sign is seen in a tree near Smarden urging to vote for Brexit in the upcoming EU referendum is seen on the roadside near Charing south east of London on June 16, 2016. Britain goes to the polls in a week on June 23 to vote to [...]

# data[].attributes.body
https://www.cairn.info/revue-de-l-ofce-2020-3-page-43.htm

After Brexit, tariff rates could remain nil in a comprehensive FTA. In the WTO regime, they would at maximum be the MFN tariff rates currently applied by the EU (and the UK) to third countries. These rates are currently very low on average.

Tariff rates for trade in goods between the UK and non-EU countries are currently 3% on average. They range from 0% for mining products, 2.5% for chemicals and electrical equipment, 6% for transport equipment and 10% for textiles. According to estimates by the UK Office for Budget Responsibility, MFN rates (weighted by the trade structure) would be 3.3% for UK exports to the EU and 4.4% for UK imports from the EU .

It is estimated that average tariffs for UK exports to the EU would be 3.8%, but point out that these tariffs would range from 0 (for pharmaceutical products) to 9% (cars), 12% (clothes), 45% (cereals), and 50% (meat). According to estimates by the Institute for Fiscal Studies, average tariffs implemented between the UK and the EU would be around 2.4% for UK exports, although significantly higher for textile-clothing (8%), agricultural products (7%), and food products (22%). Tariffs would therefore have very heterogeneous impacts depending on the sector. As concerns agriculture (30% of food consumption in the UK is imported), these rates could raise consumer prices, but they could also lead to an increase in domestic output .

Companies will be less likely to hire, meaning even fewer job openings and therefore tougher competition for roles.

The UK economy is likely to be at least several percentage points smaller in 2030 than it would have been if the country had remained in the European Union.

https://www.insurancejournal.com/news/international/2021/04/16/610159.htm

Over 400 financial firms in Britain have shifted activities, staff and a combined trillion pounds ($1.4 trillion) in assets to hubs in the European Union due to Brexit, with more pain to come, a study from New Financial think tank said on Friday.

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https://www.scmp.com/economy/china-economy/article/3078745/what-us-china-trade-war-how-it-started-and-what-inside-phase

The trade war between the US led by Donald Trump and China and its President Xi Jinping started in July 2018, but how did it start, what is the background to the tensions?

The US and China signed a phase one trade deal in January 2020, with China committing to buy US$200 billion of goods and services over the next two years

# data[].attributes.attachment_link.readable_text
However, that trade was lopsided, with the US running a large and growing trade deficit with China, which became a major political issue in the 2016 US presidential campaign. The US trade shortfall rose to US$375.6 billion in 2017 before the start of the trade war, from US$103.1 billion in 2002.

The deficit rose further to US$378 billion in 2018, before easing slightly to US$345.6 in 2019 after the start of the trade war, according to the Office of the US Trade Representative.

What is the US-China trade war?

The US and China imposed additional on goods imported from the other country, meaning buyers in the opposing country would need to pay higher import taxes to bring their purchases into the country.

At its peak at the end of 2019, the US had imposed tariffs on more than US$360 billion worth of Chinese goods, while China had retaliated with import duties of their own worth around US$110 billion on US products.

How did the trade war start?

US President Donald Trump promised during his 2016 presidential campaign to reduce the large trade deficit with China, which he claimed was based in large part on unfair Chinese trading practises, including intellectual property theft , forced technology transfer, lack of market access for American companies in China and an unlevel playing field caused by Beijing's subsidies for favoured Chinese companies.

China, meanwhile, believes the US is trying to restrict its rise as a global economic power.

When did the US-China trade war start?

The US-China trade war started on 6 July 2018, when the US imposed a 25 per cent tariff on US$34 billion of Chinese imports, the first in a series of tariffs imposed during 2018 and 2019.

It continued to escalate, with the US and China imposing various import tariffs on each other's products until an agreement in principle on a phase one trade deal was reached in mid-December 2019. The phase one trade deal was formally signed on 15 January 2020, with its provisions taking effect on 15 February 2020.

What is the phase one trade deal?

US President Trump and China's chief negotiator, Vice-Premier Liu He, signed the phase one trade deal at the White House on 15 January 2020. As part of the China agreed to buy an additional US$200 billion of American goods and services over the following two years.

Those additional purchases would be made up of around US$77 billion in manufacturing, US$52 billion in energy, US$32 billion in agricultural goods and US$38 billion in services. The latter includes tourism, financial services and cloud services.

China also pledged to remove barriers to a long list of US exports, including beef, pork, poultry, seafood, dairy, rice, infant formula, animal feed and biotechnology, Trump said.

The deal also resulted in the US suspending a new 15 per cent tariff planned for December 15 on around US$162 billion of Chinese goods, with an existing 15 per cent duty on imports worth around US$110 billion halved to 7.5 per cent. China also suspended retaliatory tariffs scheduled for that day.

What is the status of the implementation of the phase one trade deal?

The rapid spread of the coronavirus outbreak from January 2020 raised questions whether China would be able or willing to comply with the terms of the phase one trade deal.

Former Chinese officials at various points have said China would "definitely" honour its agricultural purchase commitments as part of the deal. But they conceded that the coronavirus outbreak may mean China would have to invoke a force majeure clause, referring to an unforeseeable act of God, with regard to other planned purchases.

In February, China lifted bans on some pet food products, chipping potatoes, infant formula, poultry and beef products. It also announced a series of tariff relief measures, including a process through which importers could apply for exemptions, while it also resumed buying US pork, sorghum and soybeans.

China was able to pick up its purchases of US goods in 2020, perhaps in an effort to stop things from collapsing altogether due to tensions continue to flare over issues ranging from Hong Kong to technology. This saw the US trade deficit ease to US$26.96 billion in May, compared to US$33.71 billion in June 2018, the month before the trade war began.

But in the month before the 2020 US Presidential election, China's trade surplus with the US was 46.5 per cent higher than the day Donald Trump took office in January 2017. In October 2020, China's trade surplus with the US rose 18.74 per cent from a year earlier to US$31.35 billion. This was up from US$30.75 billion in September.

And while China's purchases of US farm goods ratcheted up in the run up to the election, China is still not close to achieving its import targets for 2020.

At the end of September, it was only on track to meet 54 per cent of its purchase targets, US customs data showed.

While it ramped up imports of soybeans, and pork since the summer months, China is on track to meet just 65 per cent of agricultural purchase targets this year.

What is next in the US-China trade war?

When the phase one trade deal was signed, Trump insisted that negotiations on a phase two trade deal would start immediately to address issues such as Chinese government subsidies that were not addressed in the first deal. However, the chances of quick progress were immediately played down by The rapid spread of the coronavirus outbreak starting in January 2020 effectively postponed negotiations indefinitely.

President Trump has so far resisted pressure to ease the trade tariffs to offset the damage the coronavirus pandemic is doing to the global economy. With US and Chinese tariffs still in place, and phase two negotiations on hold, it is unclear how long the trade war will last.

The trade war reached its second anniversary in July 2020 with the US trade deficit with China having narrowed but wider relationship seen as being held together by the sticking plaster of a phase one deal.

But after narrowing earlier in the year, the US trade deficit with China was 9.15 per cent wider in July 2020 than May 2016, when President Donald Trump accused China of 'raping' the US on trade.

How will a Joe Biden presidency impact the US-China trade war?

Joe Biden's US election victory will encourage China to try and renegotiate Trump's trade deal, viewed in Beijing as being "twisted" in Washington's favour, according to advisers to the Chinese government.

Advisers see the deal as being unrealistic for China to implement, and view Biden as a more "rational and multilaterally minded" leader than Trump - despite former US officials thinking there is virtually no chance of Biden giving China a "softer" deal .

In his first address as president-elect, Biden indicated he would immediately reverse Trump's decision to leave the Paris climate agreement and the World Health Organization, which could open the door for better cooperation with China, advisers said.

Some veteran diplomats have also urged Biden to replace US Trade Representative Lighthizer with someone well versed in China policy, calling relationship "the big enchilada".

Want to know more about the US-China trade war?

Beyond the tweets, beyond the rhetoric are the stories of real people affected by the US-China trade war . In a six-part podcast series, journalists Finbarr Bermingham and Naomi Ng investigated six objects and the stories they can tell us about the state of trade.

Also, each week political economy journalist Finbarr Bermingham wraps up the latest developments in tariffs, diplomacy and economics from reporters and editors at the South China Morning Post in the US-China trade war podcast.

Still want to know more?

And in every episode of the Inside China podcast, we take a deep-dive into a specific topic, mixing independent reporting and exclusive interviews to bring you unique insights into an emerging potential superpower. Now, we are featuring regular updates on the coronavirus pandemic from across the country.

# data[].attributes.attachment_link.description
The trade war between the US led by Donald Trump and China and its President Xi Jinping started in July 2018, but how did it start, what is the background to the tensions?

# data[].attributes.body
https://www.scmp.com/economy/china-economy/article/3078745/what-us-china-trade-war-how-it-started-and-what-inside-phase

The United States and China are the two largest economies in the world. Chinese foreign trade grew rapidly after its ascension into the World Trade Organisation in 2001, with bilateral trade between the US and China almost US$559 billion in 2019.

However, that trade was lopsided, with the US running a large and growing trade deficit with China, which became a major political issue in the 2016 US presidential campaign. The US trade shortfall rose to US$375.6 billion in 2017 before the start of the trade war, from US$103.1 billion in 2002.

https://www.brookings.edu/blog/order-from-chaos/2020/08/07/more-pain-than-gain-how-the-us-china-trade-war-hurt-america/

President Trump launched the trade war to pressure Beijing to implement significant changes to aspects of its economic system that facilitate unfair Chinese trade practices, including forced technology transfer, limited market access, intellectual property theft, and subsidies to state-owned enterprises.

# data[].attributes.attachment_link.readable_text
However, that trade was lopsided, with the US running a large and growing trade deficit with China, which became a major political issue in the 2016 US presidential campaign. The US trade shortfall rose to US$375.6 billion in 2017 before the start of the trade war, from US$103.1 billion in 2002.

The deficit rose further to US$378 billion in 2018, before easing slightly to US$345.6 in 2019 after the start of the trade war, according to the Office of the US Trade Representative.

What is the US-China trade war?

The US and China imposed additional on goods imported from the other country, meaning buyers in the opposing country would need to pay higher import taxes to bring their purchases into the country.

At its peak at the end of 2019, the US had imposed tariffs on more than US$360 billion worth of Chinese goods, while China had retaliated with import duties of their own worth around US$110 billion on US products.

How did the trade war start?

US President Donald Trump promised during his 2016 presidential campaign to reduce the large trade deficit with China, which he claimed was based in large part on unfair Chinese trading practises, including intellectual property theft , forced technology transfer, lack of market access for American companies in China and an unlevel playing field caused by Beijing's subsidies for favoured Chinese companies.

China, meanwhile, believes the US is trying to restrict its rise as a global economic power.

When did the US-China trade war start?

The US-China trade war started on 6 July 2018, when the US imposed a 25 per cent tariff on US$34 billion of Chinese imports, the first in a series of tariffs imposed during 2018 and 2019.

It continued to escalate, with the US and China imposing various import tariffs on each other's products until an agreement in principle on a phase one trade deal was reached in mid-December 2019. The phase one trade deal was formally signed on 15 January 2020, with its provisions taking effect on 15 February 2020.

What is the phase one trade deal?

US President Trump and China's chief negotiator, Vice-Premier Liu He, signed the phase one trade deal at the White House on 15 January 2020. As part of the China agreed to buy an additional US$200 billion of American goods and services over the following two years.

Those additional purchases would be made up of around US$77 billion in manufacturing, US$52 billion in energy, US$32 billion in agricultural goods and US$38 billion in services. The latter includes tourism, financial services and cloud services.

China also pledged to remove barriers to a long list of US exports, including beef, pork, poultry, seafood, dairy, rice, infant formula, animal feed and biotechnology, Trump said.

The deal also resulted in the US suspending a new 15 per cent tariff planned for December 15 on around US$162 billion of Chinese goods, with an existing 15 per cent duty on imports worth around US$110 billion halved to 7.5 per cent. China also suspended retaliatory tariffs scheduled for that day.

What is the status of the implementation of the phase one trade deal?

The rapid spread of the coronavirus outbreak from January 2020 raised questions whether China would be able or willing to comply with the terms of the phase one trade deal.

Former Chinese officials at various points have said China would "definitely" honour its agricultural purchase commitments as part of the deal. But they conceded that the coronavirus outbreak may mean China would have to invoke a force majeure clause, referring to an unforeseeable act of God, with regard to other planned purchases.

In February, China lifted bans on some pet food products, chipping potatoes, infant formula, poultry and beef products. It also announced a series of tariff relief measures, including a process through which importers could apply for exemptions, while it also resumed buying US pork, sorghum and soybeans.

China was able to pick up its purchases of US goods in 2020, perhaps in an effort to stop things from collapsing altogether due to tensions continue to flare over issues ranging from Hong Kong to technology. This saw the US trade deficit ease to US$26.96 billion in May, compared to US$33.71 billion in June 2018, the month before the trade war began.

But in the month before the 2020 US Presidential election, China's trade surplus with the US was 46.5 per cent higher than the day Donald Trump took office in January 2017. In October 2020, China's trade surplus with the US rose 18.74 per cent from a year earlier to US$31.35 billion. This was up from US$30.75 billion in September.

And while China's purchases of US farm goods ratcheted up in the run up to the election, China is still not close to achieving its import targets for 2020.

At the end of September, it was only on track to meet 54 per cent of its purchase targets, US customs data showed.

While it ramped up imports of soybeans, and pork since the summer months, China is on track to meet just 65 per cent of agricultural purchase targets this year.

What is next in the US-China trade war?

When the phase one trade deal was signed, Trump insisted that negotiations on a phase two trade deal would start immediately to address issues such as Chinese government subsidies that were not addressed in the first deal. However, the chances of quick progress were immediately played down by The rapid spread of the coronavirus outbreak starting in January 2020 effectively postponed negotiations indefinitely.

President Trump has so far resisted pressure to ease the trade tariffs to offset the damage the coronavirus pandemic is doing to the global economy. With US and Chinese tariffs still in place, and phase two negotiations on hold, it is unclear how long the trade war will last.

The trade war reached its second anniversary in July 2020 with the US trade deficit with China having narrowed but wider relationship seen as being held together by the sticking plaster of a phase one deal.

But after narrowing earlier in the year, the US trade deficit with China was 9.15 per cent wider in July 2020 than May 2016, when President Donald Trump accused China of 'raping' the US on trade.

How will a Joe Biden presidency impact the US-China trade war?

Joe Biden's US election victory will encourage China to try and renegotiate Trump's trade deal, viewed in Beijing as being "twisted" in Washington's favour, according to advisers to the Chinese government.

Advisers see the deal as being unrealistic for China to implement, and view Biden as a more "rational and multilaterally minded" leader than Trump - despite former US officials thinking there is virtually no chance of Biden giving China a "softer" deal .

In his first address as president-elect, Biden indicated he would immediately reverse Trump's decision to leave the Paris climate agreement and the World Health Organization, which could open the door for better cooperation with China, advisers said.

Some veteran diplomats have also urged Biden to replace US Trade Representative Lighthizer with someone well versed in China policy, calling relationship "the big enchilada".

Want to know more about the US-China trade war?

Beyond the tweets, beyond the rhetoric are the stories of real people affected by the US-China trade war . In a six-part podcast series, journalists Finbarr Bermingham and Naomi Ng investigated six objects and the stories they can tell us about the state of trade.

Also, each week political economy journalist Finbarr Bermingham wraps up the latest developments in tariffs, diplomacy and economics from reporters and editors at the South China Morning Post in the US-China trade war podcast.

Still want to know more?

And in every episode of the Inside China podcast, we take a deep-dive into a specific topic, mixing independent reporting and exclusive interviews to bring you unique insights into an emerging potential superpower. Now, we are featuring regular updates on the coronavirus pandemic from across the country.

# data[].attributes.attachment_link.description
The trade war between the US led by Donald Trump and China and its President Xi Jinping started in July 2018, but how did it start, what is the background to the tensions?

# data[].attributes.body
https://www.brookings.edu/blog/order-from-chaos/2020/08/07/more-pain-than-gain-how-the-us-china-trade-war-hurt-america/

A September 2019 study by Moody’s Analytics

found that the trade war had already cost the U.S. economy nearly 300,000 jobs and an estimated 0.3% of real GDP.

Other studies put the cost to U.S. GDP at about 0.7%. A

2019 report from Bloomberg Economics estimated that the trade war would cost the U.S. economy $316 billion by the end of 2020, while more recent research from the Federal Reserve Bank of New York and Columbia University found that U.S. companies lost at least $1.7 trillion in the price of their stocks as a result of U.S. tariffs imposed on imports from China.

Meanwhile, the U.S. goods trade deficit with China continued to grow, reaching a record $419.2 billion in 2018. By 2019, the trade deficit had shrunk to $345 billion, roughly the same level as 2016, largely as a result of reduced trade flows. It should be noted that, while the U.S. deficit with China decreased, its overall trade deficit did not. Trump’s unilateral tariffs on China diverted trade flows from China, causing the U.S. trade deficit with Europe, Mexico, Japan, South Korea, and Taiwan to increase as a result.

# data[].attributes.attachment_link.title
More pain than gain: How the US-China trade war hurt America

# data[].attributes.attachment_link.description
The ultimate results of the phase one trade deal between China and the United States — and the trade war that preceded it — have significantly hurt the American economy without solving the underlying economic concerns that the trade war was meant to resolve, write Ryan Hass and Abraham Denmark.

# data[].attributes.body
https://www.brookings.edu/blog/order-from-chaos/2020/08/07/more-pain-than-gain-how-the-us-china-trade-war-hurt-america/

In the six months since the deal was signed, the prospects of China meeting its purchasing targets have dimmed considerably. According to  Bloomberg calculations

based on Chinese Customs Administration data, China in the first half of 2020 had purchased only 23% of the total purchase target for the year. While part of this is attributable to trade flow disruptions caused by COVID-19, much of the gap owes to the impracticality of the agreement from the start. In the phase one deal, as described by Brad W. Setser and Dylan Yalbir at the Council on Foreign Relations, China committed to purchasing roughly $60 billion more in U.S. goods than it had in 2017 — roughly $180 billion in U.S. goods this year. Yet U.S. goods exports to China currently are significantly below what they were in 2017.

# data[].attributes.attachment_link.title
More pain than gain: How the US-China trade war hurt America

# data[].attributes.attachment_link.description
The ultimate results of the phase one trade deal between China and the United States — and the trade war that preceded it — have significantly hurt the American economy without solving the underlying economic concerns that the trade war was meant to resolve, write Ryan Hass and Abraham Denmark.

# data[].attributes.body
https://www.thebalance.com/what-were-the-top-ten-events-of-the-decade-3305697

The stock market crash of 2020 began on Monday, March 9, followed by the largest point plunge for the Dow Jones Industrial Average (DJIA) to that date. Two more record-setting point drops followed it on March 12 and March 16.1

The crash was fueled by global investor fears about the coronavirus spread, which was anticipated to cause oil price drops and a recession.

https://en.wikipedia.org/wiki/COVID-19_recession

The COVID-19 recession is an ongoing global economic recession in direct result of the COVID-19 pandemic.The recession lasted two months in the United States, ending in April 2020, and one year and four months worldwide, since February 2020.

# data[].attributes.body
https://www.brookings.edu/research/social-and-economic-impact-of-covid-19/

The impact of the pandemic on world GDP growth is massive. The COVID-19 global recession is the deepest since the end of World War II (Figure 1). The global economy contracted by 3.5 percent in 2020 according to the April 2021 World Economic Outlook Report published by the IMF, a 7 percent loss relative to the 3.4 percent growth forecast back in October 2019. While virtually every country covered by the IMF posted negative growth in 2020 (IMF 2020b), the downturn was more pronounced in the poorest parts of the world.

https://www.bbc.com/news/business-51706225

-Many people have lost their jobs or seen their incomes cut.

Unemployment rates have increased across major economies.

-The travel industry has been badly damaged, with airlines cutting flights and customers cancelling business trips and holidays.

-The hospitality sector has been hit hard, with millions of jobs and many companies bankrupt.

-Separate research suggests that consumers are still feeling anxious about their return to stores. Accountancy giant EY says 67% customers are now not willing to travel more than 5 kilometres for shopping.

# data[].attributes.body
https://www.weforum.org/agenda/2021/07/covid-19-exploring-resilience-and-recovery-in-europe/

Preventing the COVID-19 crisis from severely damaging private balance sheets is key to laying the foundations for a successful recovery in Europe. The extraordinary policy response to date has been the right thing to do in the face of an unprecedented exogenous shock.

The path ahead presents a delicate balancing act. As vaccinations advance and the economic recovery gathers steam, broad emergency support should give way to policy interventions increasingly targeted at the worst hit household groups and firms.

Recent studies indicate that there are pockets of acute vulnerability within certain industries and household groups, even if the aggregate picture for both sectors offers comfort. Thus, addressing solvency needs of viable firms in hospitality and other contact-intensive services, as well as providing further assistance to the self-employed and vulnerable households remains essential. But public balance sheets are not without limits and so the policy debate will turn to the appropriate path of reducing public sector indebtedness in due course.

# data[].attributes.attachment_link.title
This is how the 2020 recession affected Europe's public and private sectors

# data[].attributes.attachment_link.description
For the strongest pandemic recovery, the IMF advises that policy support and interventions continue for those most affected, in a 'gradual and cautious' approach.