Top Economic Events of the 21st Century
Natural disasters, financial misconduct, politics, and several other factors play an important part in how an economy reacts. When an event occurs on a large enough scale, there can be tremendous impacts on economies throughout the world.
Each century has its own unique economic challenges. The first two decades of the 21st century have been no different in that respect—here are the most economically impactful events that have occurred so far.
2020: COVID-19 Pandemic and 2020 Recession
The stock market crash of 2020 began on Monday, March 9, followed by the largest point plunge for the Dow Jones Industrial Average (DJIA) to that date. Two more record-setting point drops followed it on March 12 and March 16.
The crash was fueled by global investor fears about the coronavirus spread, which was anticipated to cause oil price drops and a recession.
On March 11, 2020, the World Health Organization declared the novel coronavirus a pandemic.
To stop the spread of the virus, many countries enforced shelter-in-place orders.
As a result, most governments closed non-essential services. In just a few months, the pandemic devastated the U.S. economy. In the first quarter of 2020, growth declined by 5%. In April, retail sales plummeted 16.4% as governors forced the closure of non-essential businesses. The closure put many people out of work, lifting the the number of unemployed workers to 23 million.
The pandemic's total impact on the global economy will be under investigation for many years to come. Recent projections show that global poverty is on track to fall back to 2017 levels after more than 20 years of continuous reduction.
2016: Brexit Vote
In June of 2017, the British voted in a general election to exit the European Union. This action became known as "Brexit," the portmanteau for "Britiain's exit" from the European Union.
The UK officially left the EU on January 31, 2020. Economic growth dropped significantly in the first quarter, reaching a low not seen since 2003. At the time, the British government estimated that Brexit would lower economic growth by 6.7% over 15 years.
Over the next year, the British economy began to rebound—even with the coronavirus epidemic—nearly reaching pre-Brexit levels of output by the end of 2020.
2015: China Emerges as the World's Largest Economy
According to the International Monetary Fund (IMF), China became the world's largest economy based on purchasing power parity (PPP), which uses a conversion rate to compare currency power to a theoretical international currency.
China still has less gross domestic product (GDP) than the U.S., but it is leading in annual growth. PPP and GDP growth have shifted the economic balance of power, effectively pushing the U.S. down to second place.
China is also the second-largest holder of U.S. debt. That position gives it leverage when negotiating policies regarding imports and exports. For example, China's holdings of U.S. debt allow lower interest rates and cheaper consumer goods for the U.S.
If China were to call in its debt, U.S. interest rates and prices would rise, slowing America's economic growth—however, that would be a double-edged sword for China. Calling in debt would result in a loss of trade leverage and would cost it much of its export market. The U.S. imported $435 billion worth of goods from China in 2020.
2015: Greek Debt Crisis Threatens European Union
There were several factors behind the Greek debt crisis. One of the most influential factors was the amount of sovereign debt the country had taken on.
In 2015, Greece nearly defaulted on its debts. To avoid default, the European Union (EU) loaned Greece enough to continue making payments. It was the biggest financial rescue of a bankrupt country in history.
It also triggered the Eurozone debt crisis. Greece's debt crisis triggered concerns that other heavily indebted EU members would default as well. The crisis led to bailouts for other countries and caused many to question the viability of having one currency for the EU.
2014: Obamacare Adds Coverage for 20 Million
The Affordable Care Act (ACA) expanded healthcare coverage to over 20 million people. Lower-cost preventive care for chronic illnesses and other conditions allowed previously under-insured or uninsured people to receive care at reduced costs.
Expanding coverage reduced the country's overall tax burden, because federal, state and local governments could reduce healthcare spending further.
As a result, the rate at which healthcare costs rise has slowed. Between 2010 and 2016, they rose by 4.3% per year. However, projections still show that healthcare expenditures are expected to continue increasing.
2011: Japan's Tsunami and Nuclear Disaster
On March 11, 2011, Japan was hit by a 9.0 magnitude earthquake. It caused a 133-foot high tsunami to crash over the country's northeastern shoreline. Over 18,000 people died, and several thousand went missing. The earthquake and tsunami have been estimated to have caused $220 billion in damages.
The waves damaged the Fukushima nuclear power plant, creating radioactive leaks. The "Triple Disaster" devastated Japan's economy. It crippled the country's nuclear industry and convinced Europe to cut back its reliance on nuclear power.
2008: Billions in Bailouts
One of the worst in history, the financial crisis that took place between 2008 and 2009 was caused by poor decision-making and greed from financial, investment, and insurance institutions, mainly due to mortgage-backed securities created from subprime mortgages.
On Monday, September 15, 2008, the large investment bank Lehman Brothers, which was heavily invested in these securities, announced bankruptcy. On September 16, the American International Group (AIG), the world's largest insurance company, announced that it was going bankrupt.
Lehman’s bankruptcy sent financial markets reeling, because the company owned more mortgage-backed securities than anyone else. AIG was also heavily invested in mortgage-backed securities at that time.
Many investment funds owned AIG's stock and derivatives—this lead to an avalanche of stock value collapses, which took much of the market down.
On September 29, 2008, the Dow Jones Industrial Average (or "Dow") fell 777.68 points. Between October 9, 2007, and March 6, 2009, the Dow dropped 50%. On October 3, 2008, Congress passed a $700 billion bailout bill, now known as the "Troubled Assets Relief Program" (or "TARP").
On October 14, the Treasury used $350 billion for the Capital Repurchase Program, which purchased preferred stock in major banks.
The 2009 economic stimulus package sought to reassure investors and end the recession. It spent over $179 billion in tax relief, health services, and unemployment compensation, and helped to ease investor concerns and end the recession.
2007: Housing Crisis
Financial deregulation in 1999 led to the ability for banks to invest their customers' deposits in derivatives. The housing market expanded dangerously in the following years, with these derivatives (called "mortgage-backed securities") being created from mortgages that had been given to people who couldn't afford them.
Investors began making huge profits from the derivatives that mortgage-backed securities were based on. Average new home prices fell by 22 percent, from their peak of $262,600 in March 2007 to $204,200 in October 2010.
At the same time, the Federal Reserve raised interest rates. Many homeowners had adjustable-rate mortgages that followed the fed funds rate—when rates rose, so did monthly premiums.
Many homeowners lost equity in their homes, or couldn't sell them or meet the increased monthly payments. Mortgages defaulted, and the securities created from them dropped significantly in price—influencing the financial crisis.
2005: Hurricane Katrina Cost $160 Billion
The twenty-first century has seen its share of costly natural disasters. Hurricane Katrina was a Category 5 storm that hit the coast of Louisiana on August 29, 2005. It was the most destructive natural disaster in U.S. history, causing $160 billion in damage.
2001: 9/11 Attack Leads to War on Terror
The attacks on September 11, 2001, killed 2,973 people, including 343 firefighters. The physical damage was between $82.8 billion and $94.8 billion.
The attacks caused the stock exchange to close. When it reopened, the Dow dropped almost 700 points. The attacks deepened the 2001 recession caused by the bursting of the dot-com investing bubble. They also led to the implementation of the War on Terror. The costs of the wars in Afghanistan and Iraq have continued to increase. The latest studies reveal that costs have exceeded $6.4 trillion.