The Global Financial Crisis Shook

The government has been implementing policies in the improvement of the growth in the UK. Such as improving economic growth during the Great Depression and the recent financial crisis. A brief history by (Pettinger, 2016) on the use of fiscal policy, Keynes promoted the use of fiscal policy as a way of boosting growth. Moreover, during 1970-1980s the government switched to using monetary policy in influencing the economy. However, the government later reverted to using the fiscal policy in the recession of 2008-2013. Whether or not fiscal policy is the key policy in the process of improving economic growth is the issue.

According to recent analysis from the International Monetary Fund (IMF), in 2010, the UK is estimated to have had the fourth highest level of structural government borrowing amongst the 29 advanced economies for which comparable data are accessible. This structural government borrowing is one of the main underlying issues that the Budget, over the reign of this current government, will try to address. However, at least according to plans published so far, the UK is intending the fourth largest fiscal consolidation among this same group of countries and so by 2017 the IMF predicts that the UK will have a lower level of structural borrowing than many other advanced economies, being below the average in the Euro area and below the average among the G20 and G7 countries.

The financial crisis that happened during 2007-09 was considered the worst financial crisis in the world since the great depression in the 1930s. It leads to a series of banking failures and also prolonged recession, which have affected millions of Americans and paralyzed the whole financial system. Although it was happened a long time ago, the side effects are still having implications for the economy now. This has become an enormously common topic among economists, hence it plays an extremely important role in the economy. There are many questions that were asked about the financial crisis, one of the most common question that dragged attention was ’’How did the government (Federal Reserve) contributed to the financial crisis?’’

As a result of the Great Recession of 2007 to 2009, the United States government implemented various fiscal policies in an effort to stimulate the economy. How the government responded as well as how those responses will affect the U.S. economy into the future are the focus of a proposed research study. In order to ensure an appropriate focus for the proposed research study, problems in existing literature must be evaluated.

The government have been implementing policies in the improvement of the growth in the UK. Such as improving economic growth during the Great Depression. A brief history by (Pettinger, 2016) on the use of fiscal policy, Keynes promoted the use of fiscal policy as way of boosting growth. Moreover, during 1970-1980s the government switched to using monetary policy in influencing the economy. However, the government later reverted to using the fiscal policy in the recession of 2008-2013. Whether or not fiscal policy is the key policy in the improvement of economic growth is the issue. Therefore, starting off by defining economic growth and the current statistics of growth will help evaluate the use of fiscal policy.

During the lead up to the financial crisis of 2007-08, a term was coined to describe what was happening in the financial markets. The term was: Shadow Banking System. The creation of the term was attributed to economist and money manager, Paul McCulley, who described it as a large segment of financial intermediation that is routed outside the balance sheets of regulated commercial banks and other depository institutions (St. Louis Fed). In simpler terms, institutions that are in the shadow banking system are not regulated like commercial banks, and carry more risk due to their investments. Examples of shadow banking institutions are money market funds, mutual funds, hedge funds, etc. During the early 1990s, most American citizens didn’t know or never heard of money market funds or mutual funds; typically, the only people who knew of the “shadow banking system” were most likely senior officers at the big banks or individuals who were experts in the financial markets. However, that all changed. At the turn of the century, the shadow banking system started to gain steam and was growing at a faster rate than traditional banks. At the peak of its growth, right before the financial crisis, the shadow banking system, in terms of liabilities, was about 1.5-2 times larger than traditional banks (St. Louis Fed).

One of the most devastating aspects of the financial crisis of 2007-2008 to middle-class America was the crash of the housing market. Millions of Americans were affected and faced foreclosures on homes that were purchased with subprime mortgages. The impact of these mortgages varied state to state. Nevada, one of the countries leading tourist destinations, led the market in foreclosure rates and housing appraisal drops. The government 's false sense of security in regards to the economy and the predatory lending practices of big banks such as Bank of America, JP Morgan and Wells Fargo, impacted the housing market negatively and ultimately led to millions of people in debt and without a home.

When the financial crisis of 2008 struck the world, there were multiple business scams and schemes that became exposed, creating a colossal uproar and unrest around the world. When the stock market collapsed, people all across America took a hit, with 2.4 trillion dollars of the Americans people’s savings vanishing in just a few weeks. This financial crisis also brought to light an unprecedented amount of fraud, over exposing people who were cutting corners. One of the most famous scams that surfaced in late 2008 was operated and executed by Bernard Madoff, in which he perpetrated the largest Ponzi scam in American history. A Ponzi scheme is a simple swindle where by one set of investors are paid unreal returns out of money received from another investor. A Ponzi scheme is however always disaster prone from the beginning as there is never a strategy to wholly recoup investors money.

By the end of 2008, the European Union began experiencing rippling effects of the United States financial crisis. Several member countries, most notably on the southern end of the continent, faced high levels of debt and unemployment. Portugal, Iceland, Ireland, Greece, and Spain, derogatively referred to as “PIIGS,” required extensive economic support from the EU in order to repay government debts and bail-out private banks. Disbursal of aid in 2010 proved successful in promoting economic recovery in some countries; however, the vast majority observed only slight economic improvement which led to doubts regarding the effectiveness of the harsh austerity measures implemented. Ireland has most clearly benefited from the financial support of the European Union as the country’s unemployment rate has dropped below ten percent and is expected to witness 4.5% GDP growth in 2016. Portugal, on the other hand, shows little fiscal improvement as evident in an unemployment rate of 13% and an expected GDP growth of only 1.6% in 2016. Although both countries faced tough financial crises in 2010, Ireland has notably outperformed Portugal in resolving the situation. The weak economy in Portugal, as well as continued fiscal hardship in the remaining “PIGS” countries, threaten the preservation of the European Union as financial inequality between the members persists.

Macroeconomic objectives vary widely, from reversing a recession to containing inflation, achieving full employment to increasing economic output. Fiscal policy is one of the tools often used to realise these goals and create financial stability. There are two ways in which fiscal policy can be implemented, either a contractionary fiscal policy, or an expansionary fiscal policy, which I will explore in this assignment.

Since the global financial crisis of 2008, the UK government has been implementing various policies to combat the recession and stimulate economic growth. This essay will look at how effective the fiscal and monetary policies used since the crisis are in achieving the four-macro economic objectives. In addition, I will provide my input on the best way the UK government can carry out these policies.

The economic reforms initiated by Prime Minister Margret Thatcher since 1980’s has made the United Kingdom record steady economic growth in the 1990s. However, successive Labour governments increased government spending significantly. Since 2010, the government upheld austerity as the principal of its economic policy. In 2014, the country recorded its strongest economic growth since 2007 of 2.387 trillion dollars with GDP per capita at 39,350.64 dollars. The GDP increased significantly because of the enhanced performance of the construction, manufacturing, and services sectors. Retail sales also increased with unemployment relatively at lowest

As Olivier Blanchard, the chief economist at IMF, described austerity as “damned if you do, damned if you don’t” (Pearlstein, 2012). This argument contradicts Keynesians, who believe in borrowing and spending to stimulate growth. In reality, macroeconomic solution varies with the macroeconomic structure of the economy. Austerity is the solution when economic growth isn’t influenced by government spending, as a spending cut does not significantly harm the economy. Spending cuts should be imposed as gradual as possible in order to allow private sector to adjust. It also depends on austerity measures such as which spending is increased or decreased, what taxes are raised or lowered. In countries such as Greece, debt levels and interest rates were so high on government bonds that it couldn’t borrow and spend their way out (Zettelmeyer, Trebesch and Gulati, 2013). Austerity imposed too quickly can have a backlash, which is certainly the case with Greece. With aggressive tax increases and budget cut measures can consequently lead to an increase in unemployment followed by decrease in spending and investment resulting in the budget deficit to

He received a PhD in political science from Columbia University in 1999 and is currently a political scientist and professor at Brown University in the United States. Mark Blyth has become one of the world’s leading writers on austerity and he has formed the opinion that the policy of austerity destroys economies all over the world. “Austerity’s continuing application may well result in the eventual breakup of the Eurozone” (Blyth, 2015, p.176). His articles have appeared in several journals such as the American Political Science Review, Perspectives on Politics, Comparative Politics and World Politics. This book was written by Mark Blyth and was first published as an eBook by Oxford University Press on the 7th of March 2013. The novel was then later published as a paperback on the 1st of January

There is ongoing political divide regarding efforts of agencies and government to mitigate economic issues through intervention on monetary, fiscal policies and increased government spending during recessions. Some of these political divisions are based on political alliances and belief structures rather than an impartial macroeconomic analysis. The graphs and formulas are confusing for politicians and lay people with many preferring simple yes or no answers. Thus some argue for less active policy towards the economy while another side argues for more active policies and measures.