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The 2007-08 Crisis: A Timeline
While its underlying causes are varied and still subject for debate, it is widely acknowledged that the global financial crisis in 2007-2008 was triggered by the surge and collapse of United States housing prices in the 2000s.
In response to a 2001 economic recession, The U.S. Federal Reserve (the country’s central banking system) reduces interest rates, making it easier for households to carry larger amounts of debt. This resulted in an increased demand for U.S. housing, and in turn, increased housing prices.
U.S. housing prices start showing many of the signs characteristic of a “bubble.” These occur when investors make purchases based on the expectation of being able to sell the asset (in this case, a house) later at a higher price, and not on the qualities of the asset itself.
U.S. housing prices peak and activity in the housing sector slows. The U.S. economy begins to undertake a transition of investment and employment to other sectors.
The United States falls into recession.
When U.S. housing prices fell, many homeowners found themselves with debts that exceeded the value of their homes and went into default. Financial market liquidity dried up as banks became less willing to make loans.
Lehman Brothers, the fourth-largest U.S. investment bank collapses.
At first, the Canadian economy was little affected by the U.S. recession. But the U.S. financial crisis led to the collapse of oil prices and other Canadian exports causing the Canadian economy to fall into recession in October.
The Conservative government of Stephen Harper remains in power with an increased minority after the federal election on October 14, 2008.
The recession forces General Motors into bankruptcy. Considered ‘too big to fail’ before the recession, the risk of a catastrophic collapse of GM’s network of suppliers and industries forced the United States and Canadian governments to step in and take an equity stake in GM.
The Canadian dollar had depreciated by 20%, to less than U.S. $0.80. This depreciation encouraged Canadian exports.
One of the more decisive factors in the recovery from the recession was the strength of the Chinese economy during the crisis. Through the support of recovery in the price of oil and other resources, oil prices rebounded from U.S. $30 a barrel in December 2008 to U.S. $60 a barrel in May 2009.
The Canadian economy starts to recover with rebounding business indicators and unemployment rate peaking during the summer.
Monthly Canadian GDP spending recovers its pre-crisis peak.
Canadian employment losses were absorbed.
Recovery was slower in the United States and Europe, and the slow growth of the world economy acted as a drag on Canadian economic growth after 2011. The Bank of Canada and other central banks were forced to maintain their policy interest rates at low levels, as inflation remained weak.
It wasn’t until 2017, nearly 10 years after the United States moved into recession, that Canada and the U.S. began to return to pre-crisis monetary policy stances.