INTRODUCTION
Since late
2007, or early 2008, the United States, and most of the world, have been in one
of the deepest, longest recessions of modern history. This has caused a great
deal of political and social consternation, especially because of the deep
unemployment that is going along with the recession. The United States
government, in several steps and at several stages, has tried different things
to combat the recession, with a great deal of political controversy and a
seemingly limited amount of success.
This is not a complete history of the recession, which I (like most
people, including many experts) don't fully understand. The basic history of
the recession is that a speculative bubble in the housing market collapsed,
leading to a general financial crisis. This started to happen in late 2007, and
the dominoes fell afterwards. These were some of the basic steps taken by the
Federal Government to combat the recession
Some steps taken by US government
taken by US government to deal with recession:-
1. Bush's stimulus package, officially
known as the Economic Stimulus Act of 2008. This was when the recession was
believed to be simply a short downturn, and it was (in hindsight) a rather mild
measure: tax rebates of between three hundred and twelve hundred dollars to everyone
who had paid taxes, and quite a few people who had not. These rebates were
meant to boost consumer spending, which would stimulate the economy.
2. The cost of the bill was around 150
billion dollars, which at the time seemed like a large amount of money. How
innocent we were. The tax rebates didn't seem to stimulate the economy,
although the added money in consumers pockets might have led to the speculative
run on oil prices in the summer of 2008. However, the economy seemed to calm
down into a "normal" recession until.
3.
Lehman
Brothers. Although Bear Stearns, a large investment bank had collapsed and been
sold to J.P. Morgan in the spring, things seemed to be pretty calm until
September 15, 2008, when Lehman Brothers, another large bank collapsed. The Bush
administration launched a plan called the Toxic Assets Recovery Plan, where
around 700 billion dollars would be spent to buy up "toxic assets"
that banks possessed. Considering the objections that could be made to getting
700 billion dollars together in a week, the plan had wide bipartisan support.
4. The Bush administrations, as well as
both John McCain and Barack Obama, supported the bill. There was, however,
large objections to it from sections of both the Democratic and Republican
parties. I believe the US political system is a coalition system, and this bill
caused major rifts between the populist wings of both parties and their
establishment wings. Whatever the politics, the economic success of TARP is
hard to measure, since we don't know what would have happened without it. One
of the major hazards at this point was that the financial system was going to
seize up to the point where even the normal "background" lending that
allows businesses to cover their payroll would fail. There was, I believe, the
possibility that without TARP, the United States would be in Mad Max territory.
However, so far the US Government had spent 850 billion dollars to combat the
recession, and the only accomplishment had been to avoid total disaster.
5. While major banks had stopped falling
over like dominoes, the overall economy was still weak. The new President,
Barack Obama, signed the American Recovery and Reinvestment Act less than a
month into his presidency. This act was classical Keynesian Economics,
combining a hefty tax cut (250 billion dollars worth) with a large amount of
government projects (around 500 billion dollars). As can be believed, the
political horse trading and controversy of this act was also immense, and it
remains controversial. One of the reasons why it was so controversial is that
it hasn't restored the economy to anything close to normality. Of course, much
as with TARP, it is hard to say what type of shape we would be in without it.
But even with this additional round of tax cuts and stimulus, the economy still
has 10% unemployment. So far, the cost is around 1.6 trillion dollars to combat
the recession, but the recession is still going on.
\
