Economic Crisis Policies US Current Research Paper

Pages: 8 (2366 words)  ·  Bibliography Sources: 5  ·  File: .docx  ·  Level: College Senior  ·  Topic: Economics

S. money market back to its operations by assuming that U.S. financial system had enough liquidity to expand the market operations. Fed Reserve accepted the less credit worthy securities as collateral and held safe U.S. treasuries to keep the money supply constant. These were later termed as "toxic waste removal" policies.

Fed Reserve introduces another set of program by taking over multinational insurance company American International Group (AIG) on September 2008. This program was implemented through option of purchasing asset backed commercial paper from money market mutual funds. This policy was termed as Quantitative easing by Bernake.


First the U.S. economic crisis was only of real estate and later on it developed into global financial crisis. If it is to be judged that Fed Reserve response was appropriate or not then in my point-of-view it was not a success like condition in the interbank market only worsened and Fed swamped the U.S. banking system with unprecedented quantities of reserves during 2008. Banks considered them idle funds at the Fed rather than utilizing them as constructively. Even, network of U.S. interest bearing came to stagnate.

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However, Fed Reserve was not a complete failure and policies of Fed Reserve were success in some ways. Its intervention in U.S. financial system mitigates the crisis otherwise crisis would have wreaked havoc. For example Fed reserve have given U.S. financial system a risk free state security and another phenomenal role was Fed's success in providing the U.S. banking system a concrete monetary base by which it could safely handle the crisis.

However, some of the analysts are of the view that Fed Reserve role was manipulated due to political powers of some powerful industrialists in capitalist society. For example, it took the toxic wastes from the AIG and Bear Stearns on its books for years and its lending terms assumed that they were paid back on its own political terms and not according to law terms. (Rude, 2009)

Research Paper on Economic Crisis Policies US Current Assignment

Fiscal policy tools are always exercised according to the structure of the market and it sometimes under performs so it has to be exercised carefully. We will see in the following paragraphs that how U.S. government applied its fiscal policy tools to avert the economic crisis.

Government enhanced spending for boosting GDP growth to mitigate the increased unemployment rate to targeted level. These spending were injected into the market but much of the costs were lost due to administrative expenses and others were lost due to transit costs. Moreover, tax cuts and certain investment subsidies did not reduce unemployment and it did not reach the unemployed people.

Normally, during recession, government increased its spending, tax cuts, and increase in unemployed welfare benefits and other transfers are provided to poor people and same policies were adopted by former President Bush and current President Barrack Obama.

First policy response was from the government of President Bush in 2008. First large purchase from the U.S. government at that time by buying a large number of non-performing financial assets from the balance sheets of sick banks it also include private banks. At that time congress provided the Fed Reserve 700 billion dollars for executing this policy under the program named troubled asset relief program. (TARP)

The TARP injected massive funds into General Motors and Citi group and also performed the virtual nationalization of insurance icon AIG. Moreover it also purchases real goods and services from the private firms and provide them real time assistance.

Second part of fiscal stabilization plan was followed under Obama administration named American Recovery and Reinvestment Act in February 2009 (ARRA). It demarked an additional 787 billion dollars that included 288 billion dollars in tax cuts and benefits to individual and firms. It also allocates 275 billion dollars for contracts, grants and loans and 224 billion dollars for entitlements.

However, TARP and ARRA alone constituted approximately 10% of GDP but its effects for GDP growth and reducing unemployment were of small size. (R.Tcherneva, 2011)

Obama while taking the office promised to create 3 to 4 million jobs and introduced ARRA it did not fulfill the intended purpose but according to Romer-Bernstein report without that stimulus package the unemployment rate would have reached the rate of 9%.

Fiscal policy followed were targeting growth rate, which were thought to create jobs automatically, but it did not achieve the desired effect.

The Chairman of Fed Reserve Bernake supported the reduction of budget deficit particularly by reforming the social security and Medicare entitlement programs. During his address on April 7, 2010 he favored that the U.S. must soon develop a credible plan to address the pending funding crisis and the reduction in interest rates.


ISR international socialist review. (2009, april). Retrieved from The U.S. economic crisis:causes and solutions:

Journal of accountancy. (2009, october). Retrieved from The U.S. economic crisis: root causes and road to recovery:

Eyes on wall street. (2011, april). Retrieved from Levin coburn investigates casues of financial crisis:

Rude, C. (2009). World Economic Crisis and Fed Reserve Response to it. Studies in Political Economy.

Tcherneva, R.P. (2011). Fiscal policy effectiveness: Lessons from the Great Recession. [END OF PREVIEW] . . . READ MORE

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How to Cite "Economic Crisis Policies US Current" Research Paper in a Bibliography:

APA Style

Economic Crisis Policies US Current.  (2012, May 8).  Retrieved May 31, 2020, from

MLA Format

"Economic Crisis Policies US Current."  8 May 2012.  Web.  31 May 2020. <>.

Chicago Style

"Economic Crisis Policies US Current."  May 8, 2012.  Accessed May 31, 2020.