Did President Obama Take Necessary Steps To Take The United States Out Of The Great Recession

1321 words - 6 pages

The 2007/2008 financial crisis is widely regarded as the worst financial crisis since the Great Depression. What began as a housing bubble and a rise in foreclosures, in the United States, lead to a domino effect of financial institutions collapse. What was named a credit crunch quickly became a full on financial crisis, pushing real GDP levels down to a negative 8,9% in 2008 (1), such figures had not seen since the Great Depression. This essay argues that President Barack Obama has taken the necessary steps to take the United States out of the “Great Recession” and that the US government’s response has been proven successful combining fiscal stimulus and hints of austerity and implementing them in the appropriate times.

Despite the major efforts of the expansionary monetary policy of Federal Reserve program (Quantitative Easing) to prevent the banking system from collapsing (2), the economic crisis took its devastation toll. The monetary policy had done all it could setting in motion the $700 billion bank bailout bill on October of 2008. The bill established the Troubled Assets Recovery Program (TARP) in order to instill confidence in the distressed banks and financial institutions (3). Keynesian economics became the centre of attention and in 2009 president Barack Obama introduced the fiscal stimulus plan of 840 billion dollars called the American Recovery and Reinvestment Act (ARRA) (4), a plan which would rescue the country over the period of 10 years, the majority though would have to be spent in the first three years to increase short-term aggregate demand. The stimulus plan had three main components: tax cuts for families and small businesses with a budget of 290.7 billion dollars; help for the unemployed and those in need of Medicaid and family services such as food stamps, receiving a total of $264.4 billion; lastly investments in infrastructure, health care and education obtaining a total of 261.2 billion dollars (4).

During the negotiations of the stimulus plan ARRA, unemployment rose from 6.8% in the last quarter of 2008 to 7.8% in just 2 months and reaching levels as high as 10% in October of 2009 (5). Not only did the unemployment rise, but so did the budget deficits as well, rising from 63.8% in 2007 to 93.3% in 2010 (6) due to not only by now the implemented stimulus plan, but with the combination of automatic stabilizers such as unemployment benefits and the prior financial bank bail-out (4). Only time would tell if the stimulus plan was a successful on, but that did not take that long, because by the 3rd quarter of 2009 USA had been officially named outside of the recession. According to Carmen Reinhart and Kenneth Rogoff in their paper Recovery from Financial Crisis: Evidence from 100 Episodes, they concluded that only USA besides Germany are the only two cases in their study that have reached real output per person only after 5-6 years after the financial crisis started and thus meeting the standard for recovery...

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