The Global Financial Crisis and the Great Recession of 2007-2009

This paper is a re-examination of the global financial crisis that began in 2007 and was accompanied by the most severe recession since the Great Depression. It builds on our earlier paper (Dore and Singh, 2009) and expands its scope. It is divided into 6 parts. The first part deals with the ideological backdrop in which this crisis occurred, namely the belief in the rationality and stability of all markets including the capital markets, called the "efficient market hypothesis." The second part is a survey of the role of income distribution and its relations to aggregate spending and the growing role played by credit in the circular flow of income. The third part examines some features of the business cycle expansion phase of 2001 to 2007. The fourth part is a brief report on a nonlinear Vector Error Correction model spanning the period 1975 to 2007 and how this expansion came to an end. The fifth part is a brief comparison of the Great Recession with the Great Depression. Finally in the sixth part, the international impact of the Great Recession is considered briefly, followed by some conclusions.