Following the American Psychological Association’s Guidelines
THE U.S. ECONOMY AFTER THE GLOBAL FINANCIAL CRISIS
A great depression has started in the sub-mortgage markets in the U.S. in December, 2007. The people who got mortgage loans had difficulty to repay and the bubble in the market caused a financial crisis in the country. The financial crisis have firstly influenced the financial institutions in the country, and from them, it has spreaded to other industries. The biggest financial institutions and other industries like automobile industry have had very difficult times. A lot of workers got fired by the companies and many companies were almost to declare bankruptcy. The U.S. Government have announced a bail-out package and helped the companies to continue their businesses. However, for example, Detroit has lost the automobile industry and the city turned into a ghost city.
The macroeconomic developments have had reflection on people at micro level. Many people have been fired, and many people could not pay their mortgage loans and lost their houses. It has been a hard time to find a new job for people. Even many students have left the universities, because they could not pay the tuition.
The unemployment rates before the crisis was under 5% and just after crisis in 2008 it has reached 10% which is one of the highest unemployment rate in the U.S. history and till 2012 this number was above 9%. After 2012 it went down to 7.5% and this statistics is still higher that desired.
There was a high risk market in the U.S. during the crisis, on the other side there was not much demand for money in the country. Also to stimulate the economy, it is preferred to keep the interest rates down and it was below 3% level. Recently, the FED has decisdded to getitup again to receive some capital back from other countries.
THE ECONOMIC POLICIES DURING THE CRISIS
The Obama Government has declared after getting elected that they would follow an equilitarian economic policy in the country, thus poor and rich would have the same public services and no one would suffer because they have not got any health insurance and other social rights. The taxation policy in the U.S. Has been changed and the people with an income of over 250,000 USD have started paying higher taxes. A tax justice policy has been implemented.
However, the crisis have influenced and reshaped this decision. The government cut some funds which were supposed to be allocated to the research and education services, and more resources have been spent for the bail-out package. The tax income collected from people has been spent for the bail-out package. The aim was to stimulate the economy again after the crisis, and it has worked and through the end of 2009, the U.S. Economy has recovered from the crisis. The private sector employment by size of firm statistics shows that the companies with 250 workers or more has started recovering and they have started hiring more people. The companies with less than 250 workers have started stabilizing their number of workers. In 2009, the number of new businesses have not shown any good figure yet, however, after 2009 we observe that more new businesses have started.
During the crisis, the U.S. Government have utilized active fiscal policies for the recovery and recently, the FED announced that the U.S. Economy has reached the point where more importance could be given to the monetary policies. The FED has started picking the interest rates up, thus the capital out of the U.S. Economy would turn back to the country. Nowadays, many countries exchange rates are losing value against USD, because the more capital is going to the U.S. Economy to enjoy the higher interest rates, more stable large economy and new opportunities in an aftermath economy.
RECOMMENDED TWO STRATEGIES TO STIMULATE ECONOMY
1- Attracting capital from other countries by increasing internal interest rates and supporting this policy by fiscal policies:
The FED can incrase the interest rates in the country and that will attract the capital owners. To have the interest gain, they will take their money from other countries to the U.S.. The money amount in the country will increase and the higher liquidity of the country will help the economy to be more active. More money will mean also the inflation rate will increase because of higher money supply and this inflation will stimulate the companies to produce more at higher prices. If people has the power to purchase these products, the economy will start working efficiently again. The last statistics of the economy shows that people have started recovering from the crisis.
We can think that the higher prices will cause that people will not really be willing to pay that higher prices, however, we should not forget that all people are sellers and at the same time they are buyers. Therefore, if economy is recovering, any increase in prices might lead economic efficiency.
On the other side, increasing interest rates might slow down the investment and consumption expenditures. Because when interest rates are higher, then people would prefer gaining interest from their money and instead of investing their money somewhere else, they might prefer investing their moneys into banks. To decrease this negative effect of higher interest rates, the economy management should promote investment and consumption expenditures by decreasing taxes on investments and consumption. The economy management should be able to prove that it is worth spending now by guaranteing an economic stability in the country.
When new investment and consumption expenditures comes to economy, the unemployment rate also might go down.
2- New Investment Promotions:
The economy management can follow another policy to stimulate the economy by providing promotions for the new investments. The government can do this very easily by using fiscal policies. Fiscal policies provide the government to redistribute the income in the economy. In 2013, the American Economy has recovered from the crisis almost. To make sure that economy is becoming active again, we need more investments and more businesses, therefore unemployment rate can go down.
The government can provide cheaper opportunities for the investors. However, such a policy would be criticized by the public, because more resources would be transferred to the richer people even though these big companies provide employment for many people. So probably, the government would prefer this option politically.
This policy might be good to fight unemployment and it would not affect the inflation rate and interest rates much.
Delong, J., B. and Summer, L., H. (2012) Fiscal Policy in a Depressed Economy. Brookings Papers on Economic Activity, The Brookings Institution.
Elwell, Craig K. (2013). Economic Recovery: Sustaining U.S. Economic Growth in a Post-Crisis Economy. Congressional Research Service, CRS Report for Congress.
Holt, Jeff. (2009). A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper. The Journal of Business Inquiry, Vol. 8, No. 1.