Role of the Government in the Prevention of Recession - Essay Example

Role of the Government in the Prevention of Recession The Wall Street is given the following the construction of a very long wall that ran for eight blocks, which is approximately 1.1km long. This wall ran from Broadway all the way to South Street in the lower parts of Manhattan. This wall was constructed in the 1640s by the Dutch. History has it that the West Indians from the West Indian Company bought the Manhattan land from their predecessors by paying them with goods worth $25. This took the Indians that lived in Manhattan then by surprise because to them land could not be privately owned. When they realized that the Dutch West Indian company had taken their land, they began to demand their land back. For this reason, the Dutch Indians constructed the wall to keep the Lenape Indians out. Lenape is the name used for the people that lived in Manhattan. The Dutch Indians made use of the African slaves, and the white colonists to construct the wall to a height of 12 foot by 1.1 km length, all along the length of the original fortifications (Gigante?s, 99). The Wall Street developed into a business location around the year 1685 when traders used to gather in distinct locations to purchase and sell bonds and shares. Over time, the trade developed, and there was the specialization of these merchants into dealers and auctioneers. The Wall Street also became a place where people hired slaves. Due to these continued trading activities on this street, the New York City Common Council declared Wall Street to be a slave market, where people could buy slaves or hire them. In the year 1792, the formation of the Buttonwood Agreement led to the formation of the New York Stock Exchange. Over the centuries, the Wall Street developed its own institutions and individual personality with very little interference from other societies, or none at all. Within these years, there has also been many changes on the wall street. At first, there was the development of the agricultural trade, and then came the industrial, and finally there was the financial development, in the 19th century. In 1888, the stock exchange started to be tracked. In the early years of the20th century, there was the construction of business buildings, which were skyscrapers. The 20th century also saw the introduction of taxes on stocks transfers, though this was protested by stock clerks. The Wall Street is currently the centre of the largest stock exchange market in the world. In the 19th century, there was the development of a class of businessmen that were very wealthy. This extremely wealthy class used brutal and dishonorable ways to maintain their dominance in the major industries. This was referred to as the as the robber barons. For instance, they exploited the workers of industries such as the railroads, petroleum mad steel among others. These industries became monopolies due to exploitation by these robber barons (Gigante?s, 89). This period of domination by the robber barons lasted for a while, but people rebelled against their dominance; thus they were brought under control. For instance Cornelius Vanderbilt, subjugated the whole of the transport industry of the united states. He amassed a lot of wealth from his domination of the fleet of steamboats; the also owned and dominated the railroads. Cornelius Vanderbilt was said to be the richest man in the united states in the year 1877. Robber barons were also used to refer to the German lords who charged tolls on the roads that crossed their lands. Some also charged huge toll on the ships. The year 1929 brought about a turn in the economic history of the United States. During this time, the New York Stock Exchange experienced a financial crisis that had ever been experience. There were huge losses that were made during this time. This was also known as the “Black Tuesday”. It started in October 1929 and extended for a long time. This crash in the New York Stock Exchange lasted for ten years. This would lead to negative effects on the industrialization of most of the countries. The Enron scandal is also one of the significant periods that have been an experience in the American economy. Enron Corporation is an energy company found in Houston, Texas. It was formed in 1985. This corporation is associated with the biggest reorganization of bankruptcy and failure in audit. The scandal was as a result of the stock price of the company increasing by less than 1% in a whole year. This led the shareholders to file a lawsuit against the Enron Corporation. This problem made the U.S. Securities and Exchange Commission (SEC) to look into the corporation’s accounts. In 2001, Enron Corporation declared bankruptcy and the company were sold to its competitors known as Dynergy. The Enron scandal resulted in employees and shareholders losing a lot of money in the form of pensions and stock prices. The scandal at the Enron Corporation led to the ratification of a number of laws that ensure that there are accuracies in the financial reports that are delivered by public companies. An example of these enactments includes the Sarbanes-Oxley Act, which saw to it that there was increased transparency and accountability of firms that carried out audits. It also ensured that these audit firms are not biased to its clients. This act also put in place penalties that would be charged for engineering, obliterating or altering any financial records from public corporations. The most recent financial crisis that hit the United States, as well as the entire world, was the crisis of the year 2007 to the year2008. This is said to be the second largest financial crash since the earlier crash mentioned of 1929. This crash led to the failure of many major businesses, the decline of the stock markets, high level of unemployment and entire crumple of some companies. This period also led to many countries having to bail out banks. The housing market also declined highly, and a lot of people were evicted after the real estate prices were greatly increased. These different times in the American history have been significant in the stock exchange market. Each of these times discussed above has a lesson that the government can work on to prevent the financial crisis that has extended to date. The government has a lot of things to learn from the histories mentioned above. These lessons could be used to ensure that there is no future economic recession. The history of the development of the stock exchange market on the Wall Street could be used to handle some of the economic issues that are facing the United States at the moment. For instance, the introduction of taxes on the stocks would assist the government raising some funds. The government should also come up with ways that will lead to an increase in the economic growth and the end of the housing recession. This could be done by the reduction of taxes that are charged on people with a low income. These are the middle and the low income Americans. For instance, the reduction of taxes in the 2001 Enron scandal helped in reducing the impact of the recession. The introduction of reduced taxes enables people to have a high purchasing power; thus they purchase goods and services, which would ultimately result in the boosting of economy. This is because this would cause an increase in demand. Another benefit that could result from the tax reduction is the creation of jobs. This is because an increase in the demand for goods and services leads to expansion of industries, thus the need for more employees (Morris, 67). With this, it is clear that the government should create platforms that enable people to spend a lot of money. Another strategy that could be used is the reduction rates of interest. This would enable more people to acquire loans that they can use to develop themselves. The government could also promote the printing of more money. This is a good strategy because. The more money is printed and distributed to banks, the more individuals and organizations request for loans. This coupled with the lowered interest rates would lead to the creation of employment and the increased purchasing power of the consumers. The government would also help in the reduction of recession periods, by their increased spending in the budgets to construct roads, bridges, among other forms of development (Morris, 56). This would be helpful because it would help the government to create more employment. These strategies would ensure that the country would not experience recession, or to make sure that, in case of the occurrence on one, these means would help to reduce its impact. The Federal Reserve Bank has a huge role to play in recession. Usually, the Federal Reserve greatly influences financial situations. This is because it determines the rates charged by the banks on loans, due to the adjustments made by the reserve on the federal funds. This trickles down to the purchasing power of the people. This is because the rate at which the banks charge for the interests on any loans determines the ability of organizations and individuals to obtain loans. If the interest rates are high, individuals and organizations are discouraged to obtain loans. On the contrary, if the adjustments made by the Federal Reserve Bank enable the banks to charge lower interest rates, the public is encouraged to request for loans. This would result in the expansion of organizations, emergence of new businesses, and the ultimate creating of jobs. This would in turn increase the purchasing power of the general public, which then causes the increase in demand for more goods and services (Morris, 45). In the end, this causes the improvement of the economy. The role of the Federal Reserve Bank in the prevention of recession is to keep the money supply in a normal level and prevent inflation. This is possible by the Federal Reserve Bank establishing a situation where there are stable market prices, maximum level of employment as well as ensuring that there are moderate tax rates on the long term loans. These measures will ensure continuous flow of income and thus the reduction in recession. References Bailey, David, and Caroline Chapain. The Recession and Beyond: Local and Regional Responses to the Downturn. Oxon: Routledge, 2011. Print. Galbraith, John K. The Great Crash, 1929. Boston: Houghton Mifflin Co, 1997. Print. Gigante?s, Philippe D. Power & Greed: A Short History of the World. New York: Carroll & Graf, 2002. Print. Morris, Charles R. The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash. New York: PublicAffairs, 2008. Print. Sterling, Theodore F. The Enron Scandal. New York: Nova Science Publishers, 2002. Print. Read More