Throughout a nation’s economic history, prosperity is often realized. Nevertheless, this economic prosperity may change rapidly, thereby resulting in financial hardships that plague the country for a short or even long period. As such, recession is a terminology used by economists to categorically describe the period when a nation’s Gross Domestic Product has drastically dwindled for at least two or more successive quarters. It results in significant plunges of a nation’s stock market, a plummeted house market, increased unemployment rates, and generally a tremendous decline in the quality of life or living standards of its citizenry.
The United States of America witnessed its hitherto greatest and most impactful economic downturn from December 2007 to June 2009. The effects of this downturn, which was the greatest in a period spanning more than 60 years, led to its declaration of the title, The Great Recession. This period was marred with hosts of adverse economic ramifications as compared to previous recessions, resulting in sheer difficulties in the ease of doing business in the country. The recession led to a sharp increase in business deaths, while their births also became significantly limited. There was a decrease of at least 63000 business establishments in the US. In this regard, these economic ramifications resulted in decreased consumer spending power, especially across major sectors of the economy (Burgard, 2015). As a response to the tremendous economic decline that was being experienced in the nation, the government consequently resorted to effecting various fiscal and monetary policies to resuscitate the ailing economic situation.
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The government implemented fiscal policies through creating a bipartisan stimulus package in February 2008. Through the package dubbed the 2008 Economic Stimulus Act, the government set aside $152 billion particularly to tax rebates of close to 1200 US Dollars per household family, as well as incentive tax credits for businesses (Burgard, 2015). These moves were aimed at infusing more finances to the declining economy, alongside enticing customers to increase their spending power. Besides, this package substantially increased the loan limits, especially for high-end mortgages.
On 13 th February 2009, Congress passed another package called the 2009 American Recovery and Reinvestment Act. Its specified goals and objectives were to create new jobs alongside saving even the already existing ones, promoting government spending transparency, as well as spurring economic growth and activity. To effectively accomplish these objectives, therefore, an upward of 840 US Dollars was channeled in tax credits to business entities and working households (Martin, 2012) . Additionally, the package also sought to increase funding of various benefit programs such as unemployment, besides expanding federal grants and loans. Notably, these robustly stimulated packages and programs were intended to increase the spending power for households, whilst enhancing job creation in small and big businesses and overall economic growth.
Apart from fiscal policy, monetary policy was also employed in the US economy as a response to the Great Recession, and an attempt to effectively check the rapid decline in economy. Nevertheless, traditional or conventional monetary policy could not be incorporated majorly because the Federal Reserve had the Zero Bound problem. This occurs when the interest rates have been substantially lowered to zero percent, and thus cannot be further lowered since a negative interest rate would consequently result in non-investment. The Federal Reserve, instead, resorted to quantitative easing, as a modality to lessen the pervasive impacts of the recession. It is a monetary process whereby the Federal Reserve buys assets such as corporate bonds and many others from institutions like banks for cash, as a way to increase cash flow and enhance greater money supply in the economy. Under normal circumstances, the Federal Reserve could have otherwise bought government bonds from other people for cash, to increase the finances. Relatively, in the events of national economic hardships like the Great Recession, then there no longer exist sufficient privately-held bonds to buy, meaning that the Federal Reserve must consider purchasing other assets to stimulate the economy.
The demand-side programs and policies imposed by the US government as mitigations to the 2008 Great Recession could not eradicate the adverse ramifications informed by the immense economic decline (Martin, 2012). Nevertheless, the economy manifests some levels of success, especially from the aforementioned government actions aimed to restore economic growth and improve employment. In this regard, economic stimulus through sound monetary and fiscal policies has primarily been regarded as a leaking bucket, mainly because even when a majority of their effects are felt by the intended parties or beneficiaries, others may not be realized or achieve their expected outcomes. They are also prone to get lost due to the regulatory costs. That said, it is important to note that since the documented end of the Great Recession in June 2009, a time when the rate of unemployment nationally stood at 9.5%, it decreased moderately to 5.8% in 2014. In addition, the household equity in the US real estate sector was immensely boosted by the government programs and policies. In the course of the US economic recovery phase, the savings rates significantly decreased, subsequently resulting in enhanced consumer spending, greater cash flow, and contributing to enhanced economic growth and development, even as the country steers forward towards a more stable and financially healthy economy.
References
Burgard, S. A., & Kalousova, L. (2015). Effects of the Great Recession: Health and well-being. Annual Review of Sociology , 41 , 181-201.
Martin, F. (2012). Fiscal Policy in the Great Recession and Lessons from the Past. Economic Research Journal .
