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Shocks to the US Economy and the Likelihood of a Depression - Book Report/Review Example

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The report contains an analysis of the causes and the effects of shocks on the US economy. The impacts of recession in the US economy were explained by the key economic indicators of GDP growth rates, inflation rates in US, unemployment rates of US, performance of US dollar, etc. T…
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Shocks to the US Economy and the Likelihood of a Depression
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Shocks to the US Economy and the Likelihood of a Depression

Download file to see previous pages... The changes in the policies of after the US presidential election of 2012 have also been reported. A comparison of the key economic indicators before and after the presidential election of 2012 emphasizes the effectiveness of the government policies in preventing the likelihood of further depression. Introduction The shocks to the US economy ended the golden age of the economic performance of the country. The economic recession laid its roots in the losses of the housing and mortgage financing sector. The government policies and casual credit policies of the companies towards lending led to the financial losses. The likelihood of further depression led to changes in the government polices in order to lead the way of economic revival. The fiscal policies of cutting the government spending and reduction of taxes showed signs of recovery of US economic growth rates which are likely to sustain in near future. Literature Review The shocks to the economy of US started from the time of economic recession in 2007. The subprime crisis and the bubble of the mortgage financing market in US highlighted the drawbacks of the corporate sector and the policies of the US government. The policy of the US government in ensuring that every US citizen should have holdings of property paved the way to increase in mortgage loans. Apart from this, the investments in the housing market were lucrative as high returns were achieved within a short period of time. In order to maximize profits, the banks and the financial institutions also opened gates of finance with relaxed credit policies. As the number of defaulters started to increase, the weight of bad loans started to become heavier and the corporate houses and financial institutions lost a considerable value of their shareholders worth leading to a financial recession and economic depression in US (Freedman 60). The shocks to the US economy transformed into a global financial meltdown. In order to gain revival from the situation of economic crisis, policy makers of US adopted government monetary and fiscal policies. The government agencies were bailed out by the US government and international funds were also channelized for bailout of US companies. In order to avoid the likelihood of further depression, the government of US adopted new appropriate policies after the presidential election of 2012. The likelihood of further depression and the depreciation of US dollar were the main concerns for the US policymakers. In order to deal with the situation, the government strategized to reduce the burden of government deficit that rose to $ 1 trillion. The consolidation of the treasury was also an area of concern in order to sustain the performance of US dollar. Emerging economies such as China that piled up huge deposits of foreign currency in the denomination of US dollars were the areas of threats to the US government. Any further dip in the productivity levels and weakness in the US economy were enough for a subsequent depression. In order to deal with the situation of crisis, the US government undertook a policy of reducing the government spending and at the same time cutting the taxation of individuals and the corporate. Instead of focusing on monetary policy which provided the base of a booming economy over the years, the US government undertook effective fiscal policies in order to avoid further depression. Data and Argument The effectiveness of the policies of the US government in reviving the economy from the shocks of economic recession and in avoiding the likelihood of a depression in recent future has been stated with the help of informational data and arguments as given below. In the golden times ...Download file to see next pagesRead More
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