Loki’s Script
G.D.P
The real rate of growth in GDP from 2007 -2012 is = .8% compared to the 2.21% 10 year rate. This has remained typically strong for the U.S. thanks to a rising surplus in investment income and growth in the traditional surplus in services trade, such as royalties.
Debt Levels
As can be seen and been talked about previously the American debt levels were typically at a lower than average rate the majority of which had been long-term accumulated. The GFC however required immediate monetary intervention and hand-outs in the forms of purchasing mortgage backed securities and buying federal treasuries. This was apart of the U.S’s quantitative easing program which consisted of an unprecedented four rounds. The first round started in November 2008 and continued for17 months at 100bn worth of mortgage backed securities a month. Quantitative easing’s 2 and 3 scaled back to 85bn a month however the third’s only time restriction was until favourable market conditions, particularly being labour market improvements were recovered. Through quantitative easing 3 Outcomes consisted of;
• Unemployment dropped from 7.5% - 6.6%
The Federal bank then announced a policy that targeted the unemployment rate directly, stating that QE4 would continue until either unemployment fell below 6.5%, or until core inflation rose above 2.5%.
This Debt is not necessarily a problem if you have the income to cover it and will eventually Need to be brought back under control
Using quantitative easing has helped the recovery of the USA and other developing countries. The Fed’s then limited their ability to pursue more measures, but congress ignored those appeals to help support the economy. The Fed’s decided to use smaller steps to help investor expectations and to prevent a possible financial crisis in Europe. In 2011 it was announced that the FED’s would hold short-term interest rates close to zero percent through 2013; to help support the economy. Soon after it was announced that using the “twist” operation would push long-term interest rates down, by purchasing $400 billion in long-term treasury securities with profits from the sale of the short-term government debt. Inaugurating a policy to help shape market expectations, which will raise interest rates at the end of 2014.
Given its mandate to maximize employment and maintain price stability, the Fed took monetary policy actions in December 2008 to keep long-term interest rates at near zero (between 0.0% and 0.25%) to help stabilize and revive the U.S economy -- leaving no option for further interest rate reduction.
QE3 began in September of 2012 with a gross domestic product increasing by 4.5%, which is an impressive gain over the previous years of very little growth, GDP currently, has had a relatively steady increase over each quarter amounting to 3.9% for the most recent data. However, while GDP is of serious concern, inflation and unemployment rates have not been so easily persuaded. According the Bureau of Labor Statistics (1), in September 2013 unemployment was in a downswing but still resided at 7.2%, much higher than the Feds target rate of 5%. Currently unemployment is at 5.8% which is within the realm of the Fed’s goal. Inflation has
The financial crisis of 2007-2009 resulted from a variety of external factors and market incentives, in combination with the housing price bubble in the United States. When high levels of bank and consumer leverage appeared, rising consumption caused increasingly risky lending, shown in the laxity in the standard of securities ' screening and riskier mortgages. As a consequence, the high default rate of these risky subprime mortgages incurred the burst of the housing bubble and increased defaults. Finally, liquidity rapidly shrank in the United States, giving rise to the financial crisis which later spread worldwide (Thakor, 2015). However, in the beginning of the era in which this chain of events took place, deregulation was widely practiced, as the regulations and restrictions of the economic and business markets were regarded as barriers to further development (Orhangazi, 2014). Expanded deregulation primarily influenced the factors leading to the crisis. The aim of this paper is to discuss whether or not deregulation was the main underlying reason for the 2007/08 financial crisis. I will argue that deregulation was the underlying cause due to the fact that the most important origins of the crisis — the explosion of financial innovation, leverage, securitisation, shadow banking and human greed — were based on deregulation. My argument is presented in three stages. The first section examines deregulation policies which resulted in the expansion of financial innovation and
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?’’
The financial crisis that put our economy on a downhill rocky road is known as the Great Recession of 2008. The U.S. Governments resolution to one the biggest panics was revolved around multiple bailout and fiscal measures. The fight to pull our weakening economy out of a dark hole left the American people with hope of advancing what gets thrown their way. The many bailout programs implemented by the U.S. Government can only hold the economy together for so long until were up to our knees in debt.
In 2008 the United States experienced the worst financial crisis since the Great Depression in the 1930s, primarily because of the bursting of the U.S. housing bubble and increasing default rates on subprime mortgages which caused the price of house to increase once a high amount of loans were given out by banks to potential homeowners. Securitization played a big role in this because of how risky the regulations are and the giant corporate companies that are truly fluctuating and controlling the market. At the peak of the financial crisis new specialized mortgage lenders and securitizers came along unrestricted by government regulations which resulted in an extreme number of foreclosures and the stock market to plummet.
GDP now is in the US is 3.3%, GDP has lowered in the last 10 years. In 2007 the GDP in the US was 4.40%. There isn’t a pattern for how much it changed in 10 years it kind of went up and down since 2007. In the future I think that GDP will raise more and more.
An excess of regulation, rather than an insufficiency of it, was the principal cause of the recent credit crunch.
The U.S. economy, as measured by real GDP growth (i.e., GDP adjusted for inflation) began to recover in mid-2009. However, the pace of growth over the next 3½ years was slow and uneven. From the second half of 2009 and through 2010 real GDP increased at an annualized rate of 2.5%. Compared
In the end of the year 2007 onwards to the beginning of 2008, America experienced the financial crisis. This was something that took place in America and went on to affect the world at large. The financial crisis threatened to collapse the large financial institutions were in the country as a result of lack of funds. The global financial crisis, as it is known, lead to several problems including in the real estate industry where housing became a problem and it lead to evictions from properties as well as foreclosure of many different buildings both industrial and office property.
The Federal Reserve went into action in response to the 2008 recession by rapidly reducing interest rates with the hopes of encouraging economic growth. The federal funds target rate was decreased to between zero and .25 percent. The results of the rate changes caused what is called “zero bound”, this reduced the effectiveness of monetary policy with the near non-existence of interest rates.
The current rate of GDP growth, according to the Bureau of Economic Analysis, is 2.7% (for Q3), and it was 1.3% in Q2 of this year. This rate reflects relatively slow growth, with challenges remaining in the domestic market and with sluggishness in Europe suppressing exports to that region. The rate of GDP growth is predicted to slow to a decline of 0.5% between Q4 2012 and Q4 2013, the US re-entering recession, according to the Congressional Budget Office's projections. These projections are based on the provisions of the Budget Control Act being enacted, though any observers are doubtful that this will occur.
As interest rates bottomed out quickly after the onset of the recession, the Federal Reserve could no longer stimulate the economy with traditional and time-tested techniques. The controversial and unconventional method chosen by the Federal Reserve, and other central banks around the world, is known as “quantitative easing” (QE). QE functions by injecting large amounts of reserve capital into commercial banks with the hope that those banks will then be willing to lend the money at affordable interest rates. Ideally, the addition to economic activity affected by the influx of capital to banks should keep the value of the dollar relatively low, avoiding deflation and encouraging foreign investment by those wishing to take advantage of an affordable dollar. The cheaper dollar should also make American exports look more attractive to potential consumers in other countries. If interest rates stay low, and banks begin lending again, consumer and investor confidence should hopefully rise, leading to more spending and thus, economic growth.
Therefore, the quantitative easing adopted from 2009 was trying to gradually resume sustainable economic growth. Quantitative easing has helped to avert what could have been a second great depression (Wall Street, 2011). The US economy has been clawing its way out of the recession in 2009 and recovery has been slow compared to previous economic cycles. Regular review of the pace of securities purchase by the Federal reserve and the overall size of asset-purchase program in light of incoming information and adjusting the program as need be will help foster maximum employment and price stability.