Introduction The 2008-2010 recession is a period when an economic decline was witnessed in major world markets. The U.S. was among the worst hence pressuring the Federal Reserve to make efforts towards evading further damages. The recession was characterized by a rise in both economic demand and asset prices. Other features of the recession included high cases of unemployment, slumping commodity prices, and a drop of international trade. To avoid a further economic decline, the Federal Reserve implemented various strategies that would help stabilize the nation. In cases of economic imbalances are viewed as the main cause of the recession. In response to the recession’s damages, the Federal Bank had the main task of restoring sanity, …show more content…
• To highlight the steps that the Federal Bank followed in evading the recession.
• To identify the impacts of the Federal Bank’s actions to the country’s loans, interest rates, and business institutions.
Problem Statement
The 2008-2010 recession is viewed by many Americans as more severe compared to the 1930s Great Depression. This recession threatened the stability of financial institutions, and a severe drop of stock markets. The crisis facilitated the collapse of key businesses such as the housing sector; consumer wealth declined as well as a downturn in economic activities. The consequences of the recession were negative, and they threatened the stability of major economies. All the faulty monetary and fiscal policies had to be developed for purposes of saving the American economy. The outcome of the recession was so severe that identifying appropriate solutions seemed to be an impossible task. However, the presence of the Federal Bank helped solve the great mystery that was damaging the most economies’ economic well-being. The knowledge of the Federal Bank’s action plan is vital since such challenges may be experienced in the future.
Literature Review
The Federal Bank implemented various strategies with which it fought the negative impacts of the recession. Various steps were followed in reinstating America’s economy to its previously stable state. The steps followed involved;
• Identification of the causative
Our economy is a machine that is ran by humans. A machine can only be as good as the person who makes it. This makes our economy susceptible to human error. A couple years ago the United States faced one of the greatest financial crisis since the Great Depression, which was the Great Recession. The Great Recession was a severe economic downturn that occurred in 2008 following the burst of the housing market. The government tried passing bills to see if anything would help it from becoming another Great Depression. Trying to aid the government was the Federal Reserve. The Federal Reserve went through a couple strategies in order to help the economy recover. The Federal Reserve provided three major strategies to start moving the economy in a better direction. The first strategy was primarily focused on the central bank’s role of the lender of last resort. The second strategy was meant to provide provision of liquidity directly to borrowers and investors in key credit markets. The last strategy was for the Federal Reserve to expand its open market operations to support the credit markets still working, as well as trying to push long term interest rates down. Since time has passed on since the Great Recession it has been a long road. In this essay we will take a time to reflect on these strategies to see how they helped.
In 2008, the world experienced a tremendous financial crisis which rooted from the U.S housing market; moreover, it is considered by many economists as one of the worst recession since the Great Depression in 1930s. After posing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It brought governments down, ruined economies, crumble financial corporations and impoverish individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brother and AIG. These collapses not only influence own countries but also international area. Hence, the intervention of governments by changing and
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Recession cycles are thought to be a normal part of living in a world of inexact balances between supply and demand. What turns a usually mild and short recession or "ordinary" business cycle into an actual depression is a subject of debate and concern. Scholars have not agreed on the exact causes and their relative importance. The search for causes is closely connected to the question of how to avoid a future depression, and so the political and policy viewpoints of scholars are mixed into the analysis of historic events eight decades ago. The even larger question is whether it was largely a failure on the part of free markets or largely a failure on the part of government efforts to regulate interest rates, curtail widespread bank failures, and control the money supply. Those who believe in a large role for the state in the economy believe it was mostly a failure of the free markets and those who believe in free markets believe it was mostly a failure of government that compounded the problem.
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The recent recession lasting from 2007 until 2009, and the effects of which are still highly visible in the U.S. economy, led the Federal Reserve to use new and largely untested methods for protecting the country from a total financial collapse. The new strategy, which blurs the lines between monetary and fiscal policy, had been attempted only once before, and is open to criticism from several difference angles. This report documents the history, purpose, and controversy surrounding quantitative easing as a strategy to mitigate the effects of the recent recession. After considering these factors, the conclusion is drawn that quantitative easing was a modestly successful policy, yet one which should not be employed again. Although
The importance of central banks is derived from their main objectives - the pursuit of price stability, stable economic growth, interest rate and exchange rate stability. If disturbances occur in markets, central banks can use the tools of monetary policy and stabilize the mentioned variables (Richter, Wahl, 2011). The immediate task for central banks during the 2007-2008 crisis was to avoid a market collapse due to low liquidity and to mitigate the panic which emerged with deteriorating trust in financial institutions. As data presented by Ivashina and Scharfstein demonstrate, the level of lending in the United States plummeted by staggering 47% between the third and fourth quarter in 2008 to almost one seventh of the 2007 financial peak (from $701.5billion to $150.2billion) (Ivashina, Scharfstein,
In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG. These collapses not only influenced own countries but also international scale. Hence, the intervention of governments by changing and expanding the monetary
The last five years have been peculiar for the global economy, with recession looming around. Consequently, the role of future monetary policymakers and the interpretation of the effects of the policies have become desperately critical. In order to restore the ailing financial markets, central banks have engaged in activities aimed at reducing the interest rates to zero and expanding the balance sheets. The efforts have gone a long way toward preserving the financial markets and saving the global economy from further depression. However, the actions carry long-term risks for central banks and the economies. This paper will delve into the transition of central bank roles in the wake of the recession.