Analysis of lessons learned from 2008-10 recession for Congress and Public Fin professionals

Please view the attachments (4 sources attached and 2 more are links on the references section). The research proposal that needs to be edited must now have a clearly stated hypothesis as requested in the paper rubric/outline. Please ensure that all guidelines are followed by using the rubric/outline. A total of 8 new pages must be added to the existing 5 which should equal a total of 13 pages in length of content only. The main purpose of this revision is so that the literature review is expanded with the attached sources that were used the first time. Once that is completed, please ensure that the paper also has an explanation of the findings as the hypothesis needs to be approved or disapproved (as per guidelines of rubric). Please do not hesitate to contact me should you have any questions, I will be available all day, every day during the week. Public Finance Federico Stutzner The actions taken by the Federal Reserve during the 2008-2010 recession Introduction The 2008-2010 recession is a period when an economic decline was witnessed in major world markets. The U.S. was among the worst hence pressuring the Federal Reserve to make efforts towards evading further damages. The recession was characterized by a decrease in both economic demand and asset prices. Other features of the recession included high cases of unemployment, slumping commodity prices, and a drop of international trade. To avoid a further economic decline, the Federal Reserve implemented various strategies that would help stabilize the nation. In cases of economic imbalances are viewed as the main cause of the recession. In response to the recession’s damages, the Federal Bank had the main task of restoring sanity, especially in the financial institutions. Uncontrolled imbalances could have resulted in more economic complications. The creativity and effective strategizing that was applied helped in upgrading the country’s economic performance. For instance, the Federal Bank’s focus was on various issues such as money supply, lowering interest rates, unemployment, and the GDP. The main response was to correct and eliminate all the faults that existed in the business environment. Research Question What were the strategies and steps followed by the Federal Bank to avoid the recession? Research Objectives • To identify the exact strategies that were applied by the Federal Bank in response to the 2008-2010 recession. • To highlight the steps that the Federal Bank followed in evading the recession. • To identify the impacts of the Federal Bank’s actions to the country’s loans, interest rates, and business institutions. Problem Statement The 2008-2010 recession is viewed by many Americans as more severe compared to the 1930s Great Depression. This recession threatened the stability of financial institutions, and a severe drop of stock markets. The crisis facilitated the collapse of key businesses such as the housing sector; consumer wealth declined as well as a downturn in economic activities. The consequences of the recession were negative, and they threatened the stability of major economies. New monetary and fiscal policies had to be developed for purposes of saving the American economy. The outcome of the recession was so severe that identifying appropriate solutions seemed to be an impossible task. However, the presence of the Federal Bank helped solve the great mystery that was damaging the most economies’ economic well-being. The knowledge of the Federal Bank’s action plan is vital since such challenges may be experienced in the future. Literature Review The Federal Bank implemented various strategies with which it fought the negative impacts of the recession. Various steps were followed in reinstating America’s economy to its previously stable state. The steps followed involved; • Identification of the causative agents of the recession. • Extend of the damage that was caused by the recession. • Strategic planning of appropriate solutions. • Implementation of the most promising solutions. • A continuous monitoring and evaluation of the economy to evade repetitive recessions (Kolb, 2011). Liquidity Provision Since the largest cause of the recession was unstable financial institutions the Federal Bank provided lines of credit to both lending and financial institutions. This cash infusion strategy provided enough funds for consumer buying and consumer loans. The stability of financial institutions was vital in empowering the American Society. The Federal Bank also invested in a follow-up effort that was aimed at reducing the long-term interest rates. To achieve this goal, $ 267 billion was earmarked for bond buying alone (Bernanke, 2013). Other institutions such as the J.P. Morgan Chase were loaned money to take over the Bear Stearns Investment Bank, which was collapsing. The Federal Bank also lent money to foreign Central Banks for purposes of stabilizing their economies (Datta, 2011). Funding financial institutions was aimed at solve liquidity problems as well as improving money lending practices. Unemployment Reduction The Federal Bank reduced unemployment by introducing a cheaper business borrowing scheme. Cheaper borrowing helped many institutions to hire more employees due to the increased stability. All long-term interest rates were reduced to empower both the consumers and business institutions. The recession had destabilized both financial institutions and consumers. The Federal Bank was thus committed to increasing the citizen’s purchasing power. Employment opportunities were effective in eradicating the negative effects of the recession (Brezina, 2011). Money for Mortgages The Federal Bank established the Quantitative Easing technique that was aimed at restarting the faltering economy. As such, it invested in buying a high amount of mortgages. The main aim was to use the acquired money in buying mortgage debts and government debts. By so doing, the spending habits were stimulated and long-term interests in the stock market. It is evident that the Federal Bank had enough reserves that helped it prevent the recession from worsening (Mian & Sufi, 2014). The Federal Bank’s fight against recession had positive impacts to many institutions. For instance, the huge volumes of cash channeled to financial institutions helped reduce interest rates. Previously, banks could not loan their customers owing to the high interests that accrued. As such, banks increased their loans while companies managed to acquire more loans at reduced interest rates. This aspect enabled many companies to hire more employees hence reducing unemployment (Woods, 2009). Hypothesis The Federal Bank’s monetary assistance to financial institutions helps improve economic well-being Public Finance Independent variable: Decrease interest rates, increase monies hold by banks to lend out more and new policies for lending structures. Dependent variable: Economic well-being Data sources and research methods The appropriate source of data for this project comprises of both primary and secondary data. Previous credible literature revolving around the 2008-2010 recession will be analyzed to highlight the exact relationship between the Federal Bank and the eradication of the economic recession that began in 2008. Based on the nature of the study, a qualitative research method will be conducted to gather all the required information. Apart from the primary and secondary data sources, information will be collected through direct interaction with the respondents. The sample group will be selected randomly, and the data will be collected through interviews and questionnaires. Data Analysis The collected data will be analyzed appropriately to identify the connection between the Federal Bank’s actions and the termination of the 2008 financial crisis. The impacts of the Federal Bank’s actions will be perfectly analyzed in correspondence with the projects hypothesis. Findings The results of the project indicate that the Federal Bank succeeded in taming the 2008-2010 recession. The financial support provided in terms of loans helped empower financial institutions and business companies. The American citizens were also empowered since they could borrow at lower interest rates. These improvements contributed to a reduction of unemployment hence stabilizing the country’s economy. Conclusions and Recommendations The findings of this project are vital since they highlight the possible strategies that can be applied to curb further recessions in the future. The use of the Federal Banks was effective in stabilizing the country by funding all the financial institutions that were crumbling. It is recommendable for the Federal Bank to be prepared to eliminate and avoid all the factors that caused the recession. The Federal Bank should also focus on continuously supporting financial institutions for the desired growth to be achieved. References Bernanke, B. (2013). The Federal Reserve and the financial crisis. Princeton: Princeton University Press. https://books.google.co.ke/books?id=uygGhiV9Y2wC&printsec=frontcover&dq=how+the+federal+bank+fought+the+2008-2010+recession+in+america&hl=en&sa=X&redir_esc=y#v=onepage&q&f=false Brezina, C. (2011). America's recession: The effects of the economic downturn. New York. Rosen Pub. https://books.google.co.ke/books?id=0OATb33GlWMC&pg=PA4&dq=global+recession+in+america&hl=en&sa=X&redir_esc=y#v=onepage&q=global%20recession%20in%20america&f=false Datta, S. (2011). Economics: Making sense of the modern economy. Hoboken N.J: John Wiley & Sons. https://books.google.co.ke/books?id=3FTM8U878EkC&pg=PA137&dq=global+recession+in+america&hl=en&sa=X&redir_esc=y#v=onepage&q=global%20recession%20in%20america&f=false Kolb, R. W. (2011). Sovereign debt: From safety to default. Hoboken, N.J: Wiley. https://books.google.co.ke/books?id=WpGmPuyTWiUC&printsec=frontcover&dq=how+the+federal+bank+fought+the+2008-2010+recession+in+america&hl=en&sa=X&redir_esc=y#v=onepage&q&f=false Mian, A., & Sufi, A. (2014). House of debt: How they (and you) caused the Great Recession, and how we can prevent it from happening again. Chicago ; London : The University of Chicago Press https://books.google.co.ke/books?id=CQ1rAwAAQBAJ&printsec=frontcover&dq=how+america+avoided+the+recession+of+2008&hl=en&sa=X&redir_esc=y#v=onepage&q=how%20america%20avoided%20the%20recession%20of%202008&f=false Woods, J. T. E. (2009). Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and the Government Bailout. New York: Regnery Publishing. https://books.google.co.ke/books?id=iKxQqw-et-QC&printsec=frontcover&dq=how+the+federal+bank+fought+the+2008-2010+recession+in+america&hl=en&sa=X&redir_esc=y#v=onepage&q&f=false