sample-essay-great-recession-2008

Today, economists stick to the opinion that the period of the Great Recession of 2008 is the hardest economic crisis since the Great Depression times. It had hard effects on the wellbeing of the U.S. population, including the rise of unemployment, increase of poverty, and homelessness. Therefore, in order to deal with the crisis and save the country from the total fiasco, the U.S. Government adopted and implemented a number of the monetary and fiscal policies. In this regard, their major characteristics should be studied in detail in order to evaluate the extent of their impact on the American economy.

            The predecessor of the 2008 financial crisis was the subprime mortgage crisis in the United States. The first signs of the crisis in the USA appeared in 2006 in form of decrease in the number of sales of houses. At the beginning of 2007 it developed into the crisis of high-risk mortgage loans. Soon, the reliable borrowers experienced credit problems. Gradually, crisis began to be transformed from mortgage into financial. The immediate precursor of the overall financial and banking crisis in the US was subprime mortgage crisis in 2007, i.e. mortgage lending to low-income persons and those with bad credit history (Cynamon, Fazzari, & Setterfield, 2013).

            In the 2000s, the boom of consumption, which was accompanied by a steady increase in prices for raw materials, was observed. In 2008, the prices of many goods, particularly oil and food, reached a level that began to cause considerable economic damage. In January 2008, oil prices exceeded $100 per barrel. In July 11, 2008 the price of oil of the WTI brand reached a record mark of $147,27 per barrel; then it decreased up to $61 on October 24 of that year and up to $51 in November. Practically all goods, including oil, precious metals, and food, rose in price to record levels that led to growth of inflation and caused delay in growth of world economy (Rosenberg, 2012).

            In September 2008 in the USA, car sales decreased by 26 percent in comparison with similar month of the last year. The reason wasthat the spreading credit crisis affected purchasing power of Americans, having generated doubts in a fast stabilization of the world's largest car market. Financial crisis of 2008 and the subsequent recession in economy cost the USA more than 12,8 trillion dollars in total (Hetzel, 2012). On average, the income of the American households for 2007-2010 was reduced by 40 percent. In 2010, the number of residents of the USA, who were living below the poverty line, reached the highest rate more than in last 50 years - 46,2 million people. However, it is extremely difficult to estimate moral sufferings of tens of millions of Americans who lost all their savings, real estate and work because of crisis (Jenkins, 2013).

            In this regard, the U.S. government developed and implemented side policies, including monetary and fiscal ones, in order to overcome the crisis and return the economic situation into its normal conditions. The fiscal policies were adopted by President Bush in 2008. The laws suggested tax exemptions for the U.S. taxpayers with both low and middle incomes, tax incitements for business investments. They also envisaged increase in the limits applied for mortgages, which were eligible for acquisition by the companies financed by the government. The cost of this fiscal policy made $152 billion for 2008 (Jonas, 2012).

            Rebates were also provided to those who had no net tax liability but had the minimum annual qualifying gaining of $3,000. Those who had the status of dependents of other taxpayers were not provided with the rebates. The qualifying gaining of $3,000 supposed wages, Social Security, and self-employment income; Supplemental Security Income, however, was not considered as a qualifying income for the stimulus benefits. In addition, rebates were offered to those taxpayers whose incomes exceeded fixed limits, but had qualifying children (Hetzel, 2012).

            From the other side, additional rehabilitating policy included monetary one. This was a process at which the state monetary bodies controlled the money supply, particularly the rate of interest. The official goals commonly included low unemployment and relatively stable prices. When the signs of essential financial instability in September, 2007 emerged in the USA, the cycle of the monetary policy mitigation began. By December, 2008, the Fed's key interest rate on federal funds was reduced to the range of 0-0.25%, having closely come to its lower bound. In late 2008, the first program of quantitative easing (QE1) calculated on $600 billion, which were directed on purchase of the agency mortgage-backed securities provided with mortgages, was started (Cynamon, Fazzari, & Setterfield, 2013). In November, 2010, the second round of quantitative easing (QE2) within which by mid-2011 the Fed has made additional purchases of long-term debt of the Treasury in the amount of $600 billion, was declared. In September, 2012, started the third round of measures of monetary easing (QE3). Within this phase the Fed was intended to make monthly additional purchases of the agency mortgage-backed securities provided with mortgages for the sum of $40 billion. The effect of the taken measures on the dynamics of the stock market can be characterized as unambiguously positive (Jenkins, 2013).

            To sum up, it should be noted, that the stimulating monetary and fiscal policies became a factor of the American economy recovery. Due to the pursued soft monetary policy, the Fed has managed to achieve its interim objective of reducing the general level of interest rates in the economy, including interest rates on long-term financial instruments. On the other hand, positive influence on the unemployment rate decrease or elimination of poor quality of work was rendered by fiscal policy. A temporary increase in the upper limit of unemployment benefits and other rebates offered in the USA since 2008, provoked an increase of duration of job search since people were able to select more suitable vacancy longer and thus approached to discharging their obligations more responsibly.

Buy Expository Essay Sample and perform well in academic writing !

 
scroll to top
live-chat-button
Chat with Support