In 2007-2008 the United suffered what some have called the \"Great Recession\".

Question

In 2007-2008 the United suffered what some have called the "Great Recession". In 300 words or less provide in the space below or a separate word document the following:

--The three most critical factors that pushed the U.S. into this recession. Please list them in order of their occurrence.

--The 2-3 action the United states government took immediately following the recession to pull; us out of it.

--The most critical actions the US government has enacted to prevent such a recession from occurring again

--The Actions the Federal Reserve Board has been taking since the recession to "prop up" the economy.

Please remember--this questions cannot be answered in 4 short sentences.

Explanation / Answer

1) Three factors leading to this rcession

--The growth of inequality

One of the main underlying causes of the US financial crisis was the wide and growing inequalities of income and wealth between households in US society and between capital and labour

In terms of income inequality, the Economic Policy Institute estimates that between 1979-2006, about 91 percent of all income growth in the country went to the top 10 percent of income groups. At the same time, the highest paid 1 percent of the population more than doubled their share of total income from about 10 percent to almost 23 percent.

--Low interest rates, cheap loans and the rising leverage of investments

Between 1996 and 2004 there was a significant decline in long-term interest rates in the US. This was associated with a high and rising current account (and trade) deficit. The US had to borrow large sums of money from abroad, particularly from China, the oil producing countries and Russia, to finance the deficit. This inflow of foreign funds lowered long-term interest rates and was re-loaned by US financial institutions to consumers, homebuyers and financial investors

The large investment banks increased their asset-to-equity (or leverage) ratios from twenty-three in 2004 to thirty by 2007. That means that for every one dollar of equity or capital the banks had twenty-three to thirty dollars in assets funded by lending.

Light or absent government regulation of the financial sector

There are three main aspects to the light or absent regulation of the financial sector: government deregulation of financial activity; the lack of regulation of parts of the financial sector; and regulatory failure. One important example of the deregulation of finance in the US was the repeal of the Glass-Steagall provisions of the Banking Act 1933.

2)U.S. Treasury Secretary Timothy Geithner testified before Congress on October 29, 2009. His testimony included five elements he stated as critical to effective reform:

3)US govt passed the American Recovery and Reinvestment Act. The Recovery Act was the boldest countercyclical fiscal stimulus in American history. It included $787 billion of tax cuts and spending, with the total split roughly one-third tax cuts, one-third government investments, and one-third aid to the people most directly harmed by the recession and to troubled state and local governments. Already, American families have received more than $200 billion in tax cuts and in relief payments such as unemployment insurance. Thousands of investment projects are already underway, including everything from roads and bridges to a smarter electrical grid and clean energy manufacturing.

The Administration worked with the Federal Reserve and the FDIC to help repair the financial system. Perhaps the most important action was the stress test that gave a comprehensive evaluation of the health of the 19 largest financial institutions. This careful scrubbing of the books, together with the government

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