key term - 1990s recession

Definition

The 1990s recession was a period of economic decline in the United States that lasted from July 1990 to March 1991, characterized by a decrease in GDP, rising unemployment, and a slump in consumer confidence. This downturn was largely attributed to the savings and loan crisis, increased oil prices due to the Gulf War, and a reduction in consumer spending, leading to significant domestic challenges during the early years of the decade.

5 Must Know Facts For Your Next Test

1. The 1990s recession began after a brief economic expansion in the late 1980s and was marked by declining GDP for two consecutive quarters.
2. Unemployment rates reached their highest levels since the early 1980s, affecting millions of Americans and contributing to decreased consumer spending.
3. The Federal Reserve responded to the recession by lowering interest rates in an effort to stimulate economic growth.
4. The economic downturn led to a political backlash against George H.W. Bush, especially after he famously stated 'Read my lips: no new taxes,' which became a point of contention when he later raised taxes to address budget deficits.
5. The recession was relatively mild compared to other economic downturns, but its impact was felt across various sectors including manufacturing, retail, and construction.

Review Questions

• How did the savings and loan crisis contribute to the economic conditions during the 1990s recession?
  • The savings and loan crisis significantly weakened the financial system by causing numerous savings and loan institutions to fail. This failure resulted in tighter credit conditions as banks became more cautious about lending. As access to credit diminished, consumer spending dropped, leading to further declines in economic activity and exacerbating the effects of the recession.
• Analyze the political implications of George H.W. Bush's 'Read my lips: no new taxes' statement in relation to the 1990s recession.
  • George H.W. Bush's 'Read my lips: no new taxes' statement became politically charged when he later approved tax increases to help reduce budget deficits amid the recession. This reversal damaged his credibility with voters who felt betrayed by his promise, contributing to his loss in the 1992 presidential election. The political fallout highlighted how economic conditions can directly influence electoral outcomes and public perception of leadership.
• Evaluate the long-term effects of the 1990s recession on American economic policy and public sentiment.
  • The 1990s recession prompted policymakers to rethink fiscal strategies, leading to a focus on reducing budget deficits through both spending cuts and tax reforms. The experience fostered a more cautious approach towards monetary policy, with an emphasis on preventing future crises. Public sentiment shifted towards skepticism about government promises and fiscal responsibility, shaping the political landscape leading into the subsequent decades and influencing how both parties approached economic issues.

Related terms

Savings and Loan Crisis: A financial disaster in the 1980s and early 1990s where hundreds of savings and loan institutions failed due to mismanagement and risky investments, leading to significant economic repercussions.

Gulf War:

A conflict that occurred from 1990 to 1991 when Iraq invaded Kuwait, prompting a U.S.-led coalition to intervene, which contributed to rising oil prices and economic uncertainty.

Unemployment Rate: The percentage of the labor force that is jobless and actively seeking employment; during the 1990s recession, this rate rose significantly, peaking at around 7.8%.