A 50-Year History of Recessions
History has a tendency to repeat itself, and because of that, it’s incumbent upon us to learn from it. The history of recessions in the US is no exception. And while it isn’t possible to smooth the natural ups and downs of the economy and prevent recessions altogether, we certainly can anticipate and prepare for them.
As we’ve mentioned in previous posts, the economy is constantly expanding, peaking, contracting, or in a trough. And while it’s impossible to know exactly where we are in the economic cycle until the moment has passed, there are indications of the current state and signs of what’s on its way — if you know what to look for.
By looking at historical recessions, we can analyze the variables that came together to create them. Look at enough of them, and you can see patterns. In this post, we’re going to look at a few recessions from the past half century. For a complete list of US recessions, check out this site.
A History of Significant Recessions in the Past 50 Years
The Great Recession - December 2007–June 2009
Anyone reading this post at the time of publication lived through the Great Recession, the longest recession since the Great Depression. Lasting 18 months, the GDP fell 4.3% and unemployment peaked at 9.5%.
Cause: Unscrupulous subprime mortgage lending led to defaults when the housing bubble burst, devastating investors across industries. It took a massive $700 billion government bailout to turn things around. Learn more here.
The Dot-Com Recession - March 2001–November 2001
The tech boom of the late '90s ended in a bust. The Nasdaq lost over 75% of its value, Enron collapsed, and the Fed raised interest rates over 50%. Then came 9/11. Fortunately, interest rate cuts pulled us out of this relatively mild recession. More detail here.
The Energy Crisis Recession - July 1981–November 1982
Following the Iranian oil embargo, inflation soared. The Fed’s corrective high interest rates (up to 19%) triggered a 16-month recession with a GDP shrinkage of 2.9% and 10.8% unemployment. More about this here.
The Oil Embargo Recession - November 1973–March 1975
The OPEC oil embargo due to US support for Israel led to gas shortages and economic mayhem. Inflation skyrocketed and the Dow dropped 45%. This recession ended with stagflation — stagnant growth combined with high inflation. Background here.
What do Recessions of History Have in Common?
Looking across these examples, the pattern is clear: The Fed battling inflation by raising interest rates, often so aggressively that it pushes the economy into contraction.
What Can We Learn from Recessions in History?
Signs like soaring inflation, rapid economic growth, and rising interest rates often precede recessions. Knowing these signs can help you prepare. If you haven’t already done so, check out our posts on managing money during a contraction and why modern portfolio theory isn't enough.
If you’d like to chat about the state of the economy, and get some expert eyes on your finances and investments to ensure you’re prepared for whatever economic stage we’re in, why not schedule a no-obligation call with us? We’ve been at this for nearly 30 years, through times of feast and famine. We’ve got the tools and knowhow to help you thrive in any economic environment.
Reach out to us at info@nestfinancial.net.
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DISCLAIMER: We are legally obligated to remind you that the information and opinions shared in this article are for educational purposes only and are not financial planning or investment advice. For guidance about your unique goals, drop us a line at info@nestfinancial.net.