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Through Dissolution of the Soviet Union, Cold War and Iraq

In 2000, Republican George W. Bush was elected president in one of the closest elections in U.S. history. Early in his term, his administration approved education reform and a large across-the-board tax cut aimed at stimulating the economy. Following the September 11 attacks in 2001, the U.S. embarked on the global war on terrorism, starting with the 2001 war in Afghanistan to depose the Taliban and eliminate Al-Qaeda. In 2003, the U.S. invaded Iraq, deposing Saddam Hussein and setting up the Republic of Iraq resulting in a prolonged conflict that would continue over the course of the decade. The Homeland Security Department was formed and the controversial Patriot Act was passed to bolster domestic efforts against terrorism. In 2006, criticism over the handling of the disastrous Hurricane Katrina (which struck the Gulf Coast region in 2005), political scandals, and the growing unpopularity of the Iraq War helped the Democrats gain control of Congress. Saddam Hussein was later tried, charged for war crimes and crimes against humanity, and executed by hanging. In 2007, President Bush ordered a troop surge in Iraq, which ultimately led to reduced casualties.

The collapse of the housing bubble in 2007 led to the Great Recession. The resulting economic downturn and general discontent led Barack Obama to win the presidential election in 2008, becoming the country's first African-American president. Obama's domestic agenda notably included economic stimulus packages and the Affordable Care Act. The year 2011 saw the formal end to the Iraq War, the killing of Al-Qaeda leader Osama bin Laden, and the outbreak of the Syrian Civil War. The war on terror continued with an increase in the use of drone warfare and a shift in attention toward the Islamic State in the 2010s. In 2016, China surpassed the United States to become the world's largest economy when measured by purchasing power parity (PPP).

Globalization and the new economy

During Bill Clinton's presidency American political discourse focused mostly on domestic issues. While the early 1990s saw the US economy mired in recession, a recovery began starting in 1994 and began accelerating thanks to a boom created by technology. The Internet and related technologies made their first broad penetrations into the economy, prompting a Wall Street technology-driven bubble, which Federal Reserve chairman Alan Greenspan described in 1996 as "irrational exuberance". By 1998, the economy was booming and unemployment below 5%.

Following the dissolution of the Soviet Union in 1991, the United States was the world's dominant military power and Japan, sometimes seen as the largest economic rival to the U.S., was caught in a period of stagnation. China was emerging as the U.S.'s foremost trading competitor in more and more areas, with China's exports growing exceedingly during the 1990s and well into the 2000s. Localized conflicts such as those in Haiti and the Balkans prompted President Bill Clinton to send in U.S. troops as peacekeepers, reviving the Cold-War-era controversy about whether policing the rest of the world was a proper U.S. role. Islamic radicals overseas loudly threatened assaults against the U.S. for its ongoing military presence in the Middle East, and even staged the first World Trade Center attack, a truck bombing in New York's twin towers, in 1993, as well as a number of deadly attacks on U.S. interests abroad.

Immigration, mainly from Latin America and Asia, swelled during the 1990s, laying the groundwork for great changes in the demographic makeup of the U.S. population in coming decades, such as Hispanics replacing African-Americans as the largest minority. Despite tougher border scrutiny after the September 11 attacks, nearly 8 million immigrants came to the United States from 2000 to 2005—more than in any other five-year period in the nation's history—with almost half entering illegally.

The 1990s saw the US becoming more involved in free trade with the NAFTA agreement involving the US, Canada and Mexico being signed in 1992 before coming into effect in 1994 along with joining the World Trade Organization in 1995. During this period, inflation remained low despite recessions happening making it different from previous times in US history when inflation would increase when the economy grew. Deflation was only reported in one year which was 2009 with the inflation rate being −0.4%.

Dot-com bubble

Early 2000 to 2001 saw the dramatic bursting of the dot-com bubble. Excitement over the prospects of Internet stocks had led to huge increases in the major indexes. However, dozens of start-up Internet companies failed as many of the lofty promises heralded by the new world of the Web failed to materialize. On March 10, 2000, the Nasdaq peaked at 5,048.62, more than double its value just a year before. The downturn began on March 13, 2000, triggering a chain reaction of selling that fed on itself as investors, funds, and institutions liquidated positions. In just six days, the NASDAQ had lost nearly nine percent, falling to 4,580 on March 15. By 2001, the bubble was deflating at full speed. A majority of the dot-coms ceased trading after burning through their venture capital, many having never made a profit.

In 2002, the GDP growth rate rose to 2.8%. A major short-term problem in the first half of 2002 was a sharp decline in the stock market, fueled in part by the exposure of dubious accounting practices in some major corporations. Another was unemployment, which experienced the longest period of monthly increase since the Great Depression. The United States began to recover from the post-9/11 recession in 2003, but the robustness of the market (7% GDP growth), combined with the unemployment rate (above 6%), led some economists and politicians to refer to the situation as a "jobless recovery". Despite this, economic growth continued apace through early 2008 and unemployment dropped below 5%.

Great Recession

The Great Recession began in December 2007 and was both a financial crisis and a deep recession. While the recession officially lasted from December 2007 to June 2009, it took a number of years for the economy to recover to pre-crisis levels of employment and output. This slow recovery was due in part to households and financial institutions paying off debts accumulated in the years preceding the crisis along with restrained government spending following initial stimulus efforts. It followed the bursting of the housing bubble, the housing market correction and subprime mortgage crisis.

According to the Department of Labor, roughly 8.7 million jobs (about 7%) were shed from February 2008 to February 2010, and real GDP contracted by 4.2% between Q4 2007 and Q2 2009, making the Great Recession the worst economic downturn since the Great Depression. The GDP bottom, or trough, was reached in the second quarter of 2009 (marking the technical end of the recession that is defined by "a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales"). Real (inflation-adjusted) GDP did not regain its pre-crisis (Q4 2007) peak level until Q3 2011. Unemployment rose from 4.7% in November 2007 to peak at 10% in October 2009, before returning steadily to 4.7% in May 2016. The total number of jobs did not return to November 2007 levels until May 2014. Some areas, such as jobs in public health, have not recovered as of 2023.

Households and non-profit organizations added approximately $8 trillion in debt during the 2000–2008 period (roughly doubling it and fueling the housing bubble), then reduced their debt level from the peak in Q3 2008 until Q3 2012, the only period this debt declined since at least the 1950s. However, the debt held by the public rose from 35% GDP in 2007 to 77% GDP by 2016, as the government spent more while the private sector (e.g., households and businesses, particularly the banking sector) reduced the debt burdens accumulated during the pre-recession decade. President Barack Obama declared the bailout measures started under the Bush administration and continued during his administration as completed and mostly profitable as of December 2014.

Rise of the Chinese economy

In 2016 China surpassed the United States as the world's largest economy when measured by purchasing power parity (PPP).

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