Source: U.S. Bureau of Labor Statistics
Established in 1914, the Congressional Research Service is "Congress's brain." It's a think tank that works for members of the U.S. Congress, and no one else. Because it serves both Republican and Democratic lawmakers, its reports are highly regarded as objective, nonpartisan examinations of nearly all of the issues the country faces today.
A few weeks ago, the website WikiLeaks.com managed to procure almost 7,000 quasi-secret reports written by the Congressional Research Service for members of Congress. These reports are not classified (in fact, they are all legally in the public domain), but Congress has always resisted the release of its publicly-funded reports to the public.
Now you can read many of these reports for yourself, and we can spend a few days reviewing recent reports to Congress on the U.S. economy--so you'll have the same knowledge the lawmakers in Congress have. First up: what members of Congress are being told about the recession.
"The economy naturally experiences a boom and bust pattern called the business cycle. A recession can be characterized as a situation where total spending in the economy (aggregate demand) is too low to match the economy's potential output (aggregate supply). As a result, some of the economy's labor and capital resources lay idle, causing unemployment and a low capacity utilization rate."
"According to the National Bureau of Economic Research, the official arbiter of the business cycle in the United States, the economy has been in recession since December 2007."
"The NBER defines a recession as a 'significant decline in economic activity spread across the economy, lasting more than a few months' based on various economic indicators, with an emphasis on trends in employment and income."
"Forecasters now predict that GDP will continue to contract until the second half of 2009 and that the rate of decline will accelerate. If correct, this recession would be the longest in the period since World War II."
"The unemployment rate, which was 4.8% in February 2008, rose to 6.1% in August, remained there in September, and rose again to 6.5% in October, to 6.8% in November, and to 7.2% in December 2008." [It rose to 7.6% in January 2009.]
Cause #1: Severe Housing Downturn
"After a long and unprecedented housing boom, the median price of existing homes fell by 1.8% in 2007--possibly the first year of falling prices since the Great Depression, according to one organization that compiles the data. The decline continued in 2008 and appears to be worsening."
"Other housing data fell even further--existing home sales fell by 22% in the twelve months through December 2007, and residential investment (house building) fell by 18% in the four quarters ending in the fourth quarter of 2007."
"Many economists argued that the housing boom was not fully caused by improvements in economic fundamentals (such as rising incomes and lower mortgage rates), and instead represented a housing bubble--a situation where prices were being pushed up by 'irrational exuberance.'"
Cause #2: Widespread Financial Turmoil
"Most economists believe that a housing downturn alone would not be enough to singlehandedly cause a recession. But in August 2007, the housing downturn spilled over to widespread financial turmoil."
"Triggered by a dramatic decline in the price of subprime mortgage-backed securities and collateralized debt obligations, large losses and a decline in liquidity spread throughout the financial system."
"A reduction in lending by financial institutions in response to uncertainty or financial losses is another channel through which the economy entered a recession."
Cause #3: Energy Price Spike
"At the same time the economy and financial sector were grappling with the housing downturn, energy prices rose significantly, from $48 per barrel in January 2007, to $115 on April 30, 2008, to $144 as of July 2, 2008."
"After that, oil prices began a downward trend and fell below $70 by October and $60 by the end of November. The price reached $43 per barrel on December 10."
"Most recessions since World War II, including the most recent one, have been preceded by an increase in energy prices. . . . Although a housing downturn, financial turmoil, or an energy shock might not be enough to cause a recession in isolation, the combination was sufficient."