Wednesday, August 4, 2010, AM | Leave Comment
According to some experts, the recent great recession is not over yet. Others say by the end of this year, it will be history. That’s too early to jump into conclusion. However, all indications are that the economy is on the path of recovery. The end of the recession will happen only when there is “full” employment. When the unemployment rate is no more than 5%. It’s almost double now.
The American public should be aware of who in the government have been involved in the almost end of the Great Recession. Some of the most aggressive economic and financial steps were taken the likes of which the United States had not seen since the Great/Worst Depression of the 1930s. The so-called Global economy has one great repercussion that the recent recession engulfed a big chunk of the world economy. The old adage that when America sneezes, the rest of the world catches cold still holds true.
Folks at Moody estimate that without the government’s response, GDP in 2010 would be about 11.5% lower, payroll employment would be less by some 8½ million jobs, and the nation would now be experiencing deflation. Their research further suggests that financial-market policies – such as the TARP (Troubled Asset Relief Program), the bank stress tests and the Fed’s quantitative easing – were more responsible for the recovery than fiscal stimulus. To be fair, fiscal stimulus alone appear very substantial, raising 2010 real GDP by about 3.4%, holding the unemployment rate about 1½ percentage points lower, and adding almost 2.7 million jobs to U.S. payrolls.
The major players that have been taking part in the recovery are the following:
The Federal Reserve took a number of extraordinary steps to quell the financial panic. The Fed aggressively lowered interest rates during 2008, adopting a zero-interest-rate policy by year’s end. It engaged in massive quantitative easing in 2009 and early 2010, purchasing Treasury bonds and Fannie Mae and Freddie Mac mortgage-backed securities (MBS) to bring down long-term interest rates.
The FDIC also worked to stem the financial turmoil by increasing deposit insurance limits and guaranteeing bank debt.
Congress established the Troubled Asset Relief Program (TARP) in October 2008, part of which was used by the Treasury to inject much-needed capital into the nation’s banks.
The Treasury and Federal Reserve ordered the 19 largest bank holding companies to conduct comprehensive stress tests in the spring of 2009, to determine if they had sufficient capital to withstand further adverse circumstances and to raise more capital if necessary.
Federal Housing Administration
FHA facilitated refinancing of mortgages which created hope for homeowners. It also expanded mortgage lending.
The demise and bankruptcy of Lehman Brothers woke everybody up. That was, some experts say, a blessing in disguise.
Last but not least in any sense of the word, policymakers in the Bush and Obama administrations took steps to put the economy back on the path of recovery.
In a Nutshell
The Great Recession, in part created by financial panic, was a massive blow to the U.S. economy. Employment is still some 8 million below where it was at its pre-recession peak, and the unemployment rate remains above 9%.