Essay On The Financial Crisis Of 2008
explanatory Essay
945 words
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.
In this essay, the author
- Explains that the crisis started from the financial sector and spread to other sectors in the economy.
- Explains that the us and other countries were affected by the crisis.
- Explains that the application of the lower zero bound becomes effective on the policy rate.
- Explains that the response to monetary and fiscal policies in financial crisis of 2009 was much faster as compared to the great depression.
- Compares the fed's monetary policy in the 1930s and the 2008 financial crisis.
- Explains that during the great depression, there was no banking deposit insurance, introduced after roosevelt became president in 1933. during the 2009 financial crisis, the insurance deposit was up to $ 100 thousands.
- Explains that the financial crisis of 2008 was caused by both the monetary and fiscal policy. the us government housing policy reduced its underwriting standards and gave sums of money into the housing market.
- Explains that the fed went too far contradicting the government by increasing the bank deposits, which increased the spending rate.
- Explains that john maynard keynes, a famous economist, introduced the notion of fiscal stimulus.
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- Cites calomiris, charles w., friedman, milton, and schwartz, anna. a monetary history of the united states 1867-1960.
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In this essay, the author
- Explains how they will discuss the role of the federal reserve in the united states economy.
- Explains that the federal reserve system is the united states central bank and is responsible for all other banks and the amount of money we have in the economy.
- Explains that the fed uses open market operations because it is an easy way to effect the money in the economy without changing any banking regulations or laws.
- Explains that the discount rate is used to control money and help banks when they are in trouble. the federal open market committee is responsible for the federal funds rate.
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- Explains how they discussed the role of the federal reserve in the united states economy. they used the book and your comments from the essay to relay their information.
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In this essay, the author
- Opines that the fed should stay with its policy until there is evidence of an overwhelming economy before thinking about an exit strategy.
- Compares the gdp growth rate for 2008-2009 recessions, which is -2.7 percent, with the unemployment rate of 10 percent.
- Explains that some are concerned about the long run effect of the unemployment rate, one of them which might cause a permanent damage on the economy based on hysteresis.
- Explains that changes in interest rates affect consumption spending, inflation, unemployment, employment, and gdp. if the fed decides to use an exit strategy to increase rates soon, it has two ways to change the interest rate.
- Opines that the fed's economic models should focus on global trade.
- Opines that the fed should stick with expansionary monetary policy because the economy is recovering from the 2008-2009 recessions.
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- Explains that sequestration was implemented because the budget control act prevents the united states from defaulting on its national debt when both parties cannot agree on entitlement cuts or tax revenue.
- Analyzes the relationship between sequestration and the government shutdown, which exemplifies a contractionary momentary policy approach.
- Explains that sequestration is a double-edge sword, and that it has had no negative effects on the economy. the military budget is $552 billion and it will be reduced to $519 billion.
- Analyzes how ben benanke urges political parties to exchange the sequestration with smaller cuts for government expenditures.
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- Explains that sequestration utilizes a contractionary fiscal policy. mandatory spending is threatening the competitiveness of the united states.
- Explains that the graph depicts a contractionary fiscal policy by the government. sequestration or mandatory automatic spending cuts are being implemented for two consecutive years.
- Explains that the federal reserve is using an expansionary monetary supply to stimulate the economy.
- Explains the three monetary policy tools are open market operations, reserve requirements, and discount window lending. the federal reserve cannot directly influence the economy.
- Explains that open market operations are the buying or selling of government bonds by the federal reserve to increase the money supply.
- Explains demand deposit liability is when the federal reserve requires commercial banks and depository institutions to keep a certain percentage of checking and saving accounts to be liquid.
- Explains that the discount window is where commercial banks and other depository institutions borrow reserves from the central bank at a discount rate.
- Explains that the federal reserve manipulates monetary policy to establish new ranges for inflation, unemployment, interest rates, and economic growth, creating a stable financial environment in which savings and investment can occur.
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In this essay, the author
- Argues that subprime mortgages, collateralized debt obligations, credit default swipes and frozen markets can explain the economic devastation that is still felt today.
- Explains how the financial crisis of 2007 began by brining two groups of people together that had no prior direct relationship history.
- Explains that before the financial crisis of 2007, investors had abundant money and were looking for opportunities to invest. the federal reserve chairman, allen greenspan, lowered interest rates to one percent to keep the economy strong.
- Explains that moral hazard and cheap credit allowed investment banks to go make deals using leverage. leverage is borrowing money to amplify the outcome of a deal.
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- Explains that investment banks bought mortgages directly from mortgage lenders and now sell them to investors, hedge funds, and investors.
- Explains that the banker now wants more profits and calls the mortgage lender to find more homeowners. the only issue is that all of the qualified homeowners have homes.
- Explains how the subprime mortgages became colossal when investment bankers began to own more homes and bring in less mortgage payments.
- Describes how the investment banker is left with houses that have no value and calls up other investors in an attempt to sell the cdo but the investor is no longer interested because he is in the same situation. the ripple effect is at its peak and everyone goes bankrupt.
- Explains that the government attempted to save the economy three separate attempts. quantitative easing is a monetary policy approach of purchasing large quantities of long term assets.
- Analyzes how the second round of quantitative easing came in 2010 when the government decided to purchase over $600 billion in treasury bills over a six month period.
- Opines that the only true healer is time. the government has tried to save the economy from falling into a depression, but there are no signs of huge growth in the housing market in near future.
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In this essay, the author
- Opines that the 2008 economic collapse was the final building block towards a more structural society, political system, and government in the united states of america.
- Explains the causes of the 2008 economic collapse, but only a few really dealt the damage. sub prime mortgages backfired on banks across the nation resulting in huge financial losses.
- Explains how to fix the u.s. financial crisis. scientific american global rss.
- Analyzes usa today's "timeline: key events in financial crisis." gannett, 09 sept. 2013.
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599 wordsRead More