The author of this paper "Federal Reserve and the Great Recession" explores the economic issues. According to the text, the great recession was a period of economic downturn that was characterized by liquidity-related issues. …
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One of the major causes of the Great Recession was the bursting of the housing bubble. Being a regulator of the monetary system, the Federal Reserve could have seen a crisis coming. The major cause of the housing bubble bursting was that the Fed opted to expand their monetary policy; though the regulation was effectively done, this policy was a contributor to the problem. The Federal Reserve might have bowed to the pressure from the government to have the implementation of the housing policy be implemented. It happened that the dot-com crash was followed by a substantial increase in the printing press that resulted in an increase in the monetary base. Additionally, there was a great cut in the federal funds by Greenspan (from 5.6% in 2001 to 1% in 2003). These factors contributed to an increase in the housing among other investments that utilize huge amounts of capital. The Fed could have intervened at this point and develop a regulatory mechanism to prevent the situation from escalating to the financial crisis and ultimately the Great Recession. The Federal Reserve failed to develop adequate measures that would deal with the insolvency. Two institutions at the center of the Great Recession, Lehman Brothers, and Washington Mutual became insolvent resulting in their collapse. The Fed made a miscalculated attempt to go ahead and support these institutions instead of giving them a chance to fail, the outcome would have been an increase in the amount of savings as well as investments.
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36-38). Many experts have tried their best to defend this system, however, other have criticized it strongly. Furthermore, the current financial recession has ignited this debate to great limits. In fact, there have been some amendments in the current Fair Value Accounting, however, the essence of it remains the same, and the debate goes on.
It is important to learn from mistakes and try to prevent the same mistakes from happening in the future. Sometimes, however, if one just focuses on the circumstances and not the root of the problem, the past can still repeat itself, just in a different fashion.
Impacts of the recent mortgage crisis on the money supply in the United States and the actions of Federal Reserve take in response to the mortgage crisis Impacts of the recent mortgage crisis on the money supply in the United States and the actions of Federal Reserve take in response to the mortgage crisis.
A number of economic experts and financial analysts have studied this crucial time to find out the cause that led to the economic downfall in a bid to prevent something similar from occurring again, a number of theories have occurred from these studies, but two main ones that will be discussed in this paper are the Monetarist and the Keynesian theories which have garnered a lot of attention over the years (Mishkin, 2010).
Fed employs the following monetary policy tools to maintain economic stability: defining a discount rate, establishing reserves requirements and open market operations (Brezina p.52). Therefore, this research will focus to investigate effects of the monetary policies applied by the Fed as discussed below under several sub-headings.
Economic indicators based on actual data or leading indicators are used by the Federal Reserve in firming up its monetary policies. In order to achieve its objectives, Federal Reserve controls money supply directly in the economy through supply of Federal Reserve balances and indirectly by controlling the interest rates.
A close study has shown that the policies taken by the Federal Reserve were not successful enough to combat the financial crisis. The reasons for expressing this view have been dealt with and the logic for the negative notion has been discussed in details.
The financial crisis is believed to have been accelerated by the collapse American Housing market in 2006 and 2007, which had a profound effect on the United States and banking systems (Gowland 12). The collapse of the housing market had a widespread effect on performance of the banking systems because most of the large financial institutions had heavily invested in mortgages.
Recessionary phase of business cycle often results into decline in growth, increase in unemployment as well as a general increase in the price levels besides resulting into crumbling of stock markets (Blanchard). The recession also results