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Summary of the financial crisis 2008
Summary of the financial crisis 2008
Introduction to the financial crisis 2008
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The financial crisis of 2008. The financial crisis of 2008 was caused by both the Monetary and Fiscal policy. The Financial crisis started when the US government housing policy reduced its underwriting standards, and gave sums of money into the housing market, this started as early as mid-90s, which was aimed to encourage more home ownership for both low and moderate income earners Citizens of America. This policy worked well until 2007 when the US was faced with a financial crisis. These was caused by both the monetary policy and fiscal policy.. Monetary Policy that caused the 2008 crisis By 2005, the Federal Reserve had recognized that they had expanded the monetary policy which caused a higher inflation. Therefore, they started to tighten policy through its standard procedure, of increasing its targeted interest rate, but as usual, the Fed went too far contradicting the government. When Fed increased the bank deposits, it provides the bank with more capital which enabled people to make loans and investments. This process increases money supply, which also increases the spending rate, thus, as the spending increases more than the ability of an economy to produce goods and services, it caused inflation. This was clearly shown, when St. Louis Federal Reserve data on Fed deposit increased by 20 percent that was from April 2001 to 2005, April. But during the same period, other measures of money also increased rapidly. Good examples are; the monetary base increased to 28 percent, MI increased to 22 percent and the currency to 30 percent. The money supply increased which also lead to an increase in spending. And the effect was that from 2002 spring to 2006 spring, the GDP increased to 26 percent, thus as the GDP... ... middle of paper ... ...e of the crisis; The monetary policy also differed, the first three years of the great depression, the Fed put up with the crisis for sometimes, while they applied a substantial reduction of supply of the money to reduce insolvency problem (Friedman and Schwartz, 1963). While in the 2008 financial crisis, on the last four months in 2008, Fed poured a large sum of money into the banking sector to increase money supply in the economy based on the previous lesson learnt from the great depression by the policymakers in 1930s And lastly, the differences in the monetary sector, during the great depression, there was no banking deposit insurance, it was introduced after Roosevelt become president in 1933. On the contrary, during the 2009 financial crisis, the insurance deposit was up to $ 100 thousands, which was one of the requirements to all financial institutions.
The Great Depression was one of the greatest challenges that the United States faced during the twentieth century. It sidelined not only the economy of America, but also that of the entire world. The Depression was unlike anything that had been seen before. It was more prolonged and influential than any economic downturn in the history of the United States. The Depression struck fear in the government and the American people because it was so different. Calvin Coolidge even said, "In other periods of depression, it has always been possible to see some things which were solid and upon which you could base hope, but as I look about, I now see nothing to give ground to hope—nothing of man." People were scared and did not know what to do to address the looming economic crash. As a result of the Depression’s seriousness and severity, it took unconventional methods to fix the economy and get it going again. Franklin D. Roosevelt and his administration had to think outside the box to fix the economy. The administration changed the role of the government in the lives of the people, the economy, and the world. As a result of the abnormal nature of the Depression, the FDR administration had to experiment with different programs and approaches to the issue, as stated by William Lloyd Garrison when he describes the new deal as both assisting and slowing the recovery. Some of the programs, such as the FDIC and works programs, were successful; however, others like the NIRA did little to address the economic issue. Additionally, the FDR administration also created a role for the federal government in the everyday lives of the American people by providing jobs through the works program and establishing the precedent of Social Security...
middle of paper ... ... On March 12th Roosevelt made a broadcast that was also the first of a series of fireside chats, speaking in a friendly and unofficial manner, and explained that the people would be better off keeping their money in the bank than keeping their money with them in their houses. After a few of the fireside chats, people started to believe it and most of the major banks reopened. The Great Depression lasted for a period of time in which America elected two different presidents, Herbert Hoover and Franklin D. Roosevelt.
(Klein) President Roosevelt took many of these ideas and put money into public works to give people jobs, as well as giving subsidies to farms to keep food supplies constant and accessible. Advocates of this approach claim it to have been successful, and many of the programs that were set up during the New Deal softened the blow of the 2009 recession decades later. Though these reforms did little to stop the recession from occurring in the first place, they did allow people the ability to weather the storm for a few years while the economy stabilized. Removing them would only leave open the people who would be hurt the most in another
First, because of the Great Depression, President Roosevelt decided to take immediate actions to the problem, and he called it “Relief”. Long before the World War II, the banks were closing, citizens rushed to the banks to take out their money in case of bank closed and they would lose all their savings. In 1933, the number of closing banks started to increase suddenly. President Rooseve...
Prior to both times the Federal Reserve was highly thought of. In both the great Depression and the Great Recession the Presidents of those times increased spending to try to get the country out of the impending recession. Both Obama and Roosevelt increased the taxes in their presidency but as shown in the Great Depression high taxes are fol...
Regardless, in regards to applying Keynesian economic policies toward the Great Depression, Former Federal Reserve Governor Ben S. Bernanke said “You 're right, we did it. We 're very sorry. … we won 't do it again” (Federal Reserve Board, 2002). Other economic theory must be developed to address some of the shortcomings of the Keynesian economic
President Roosevelt’s first set of acts was regarding the relief of those effected by the Great Depression. It was quickly determined that practically every citizen was effected in some way. On March 12, 1933, FDR came over the radios of Americans in his famous Fireside Chat. This particular speech was regarding the banking crisis. He dove right in and mentioned the issues on the forefront of American’s minds. In the last days of February and into the first weeks of March there was surge of people that took their entire savings out of their banks for cash or gold because they feared loosing their money all together. Roosevelt explains that, “Th...
With the Glass Steagall Act of 1933 over 7,000 banks today are more covered than during the Great Depression,that's how it started in the first place.Think about it we wouldn't have the many programs that serve to our benefit today. What would we be doing right now if it weren't for the Great Depression and the 3 R’s that Roosevelt promised, Relief, Reform, Recovery. So in the end we should be almost relieved that the Great depression already happened in 1929 and we’re not dealing with the consequences
The Stock Market Crash of 1929 caused the Great Depression, allowing Herbert Hoover and Franklin D. Roosevelt to take some action as president. Hoover however did much less than FDR. Roosevelt was fully prepared for action as soon as he took office unlike Herbert Hoover, who has been said to be a “do-nothing” president. Luckily with Roosevelt’s efforts, his Bank Holiday, and the New Deal the U.S. was taken out of the depression and the federal government became much more involved in people’s everyday economic and social lives.
What caused the Great Recession that lasted from December 2007 to June 2009 in the United States? The United States a country with abundance of resources from jobs, education, money and power went from one day of economic balance to the next suffering major dimensions crisis. According to the Economic Policy Institute, it all began in 2007 from the credit crisis, which resulted in an 8 trillion dollar housing bubble (n.d.). This said by Economist analysts to attributed to the collapse in the United States. Even today, strong debates continue over major issues caused by the Great Recession in part over the accommodative federal monetary and fiscal policy (Economic Policy Institute, 2013). The Great Recession of 2007 – 2009 enlarges the longest financial crisis since the Great Depression of 1929 – 1932 that damaged the economy.
Another problem prior to the establishment of the Federal Reserve System was the inelasticity of bank credit and the supply of money. Small banks placed their excess reserves in large central reserve banks. Whenever a bank’s depositors wanted their funds, the smaller banks would be covered by the central banks. The system worked well during normal conditions. Some banks would draw down on their reserves as other banks would be building up their reserves. In times of excessive demand, however, the problem became quite serious. When the public wanted large amounts of currency, the
The monetary policies that caused the financial crisis were that the Federal bank reserves provided banks with new funds that enabled them to make loans and investments. The process led to increase in money supply which in due course increased the rate of spending (Flores, Leigh & Clements, 2009). Eventually, the increase in spending over and beyond the capacity the economy to produce goods and services led to inflation.
First, when the stock market crashed banks began to shut down causing havoc because people were not able to make transactions. (Could not deposit or withdraw money.) Since people were not able to access their money people were beginning to get frightened on the possibility of not being able to pay their bills, or be able to provide enough to maintain food on the table for their families.
(Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question who is actually to blame for this financial fiasco.
Economics primarily focuses on how laws and government policies impact the economy. Much of this looks at taxes specifically and more generally the public finance, which includes the spending and borrowing the government does. The root word of economics is economy. Economy comes from the Greek oikos - home and nomos - managing. (Dkosopedia, 2006) Economy can be described as the current soundness of financial indicators such as jobs and job growth, economic productivity and output, and can also be measured by a vast range of other factors such as the trade deficit, national debt, GDP, and unemployment rates. In this paper, the effects of the monetary policy on macroeconomics, GDP, unemployment, inflation and interest rates will be discussed. Throughout the paper explanations of how money is created will be given along with discussing what monetary policies combination will achieve the goal of economic growth, low inflation, and a reasonable rate of unemployment, what combination of monetary policies will better accomplish this goal.