Abstract
The purpose of the above paper is to highlight the impact of the great recession that was experienced in 2007 -2009 and the bailout strategies used by governments to restore investment institutions from collapsing. The paper starts with an introduction that explains the impact of the great recession to the U.S and global economy. As a remedy to avert the adverse effects of the global recession, both short term and long term strategies were sought. The advantage of using the short-term strategies was to restore stability in the financial sector and prevent further collapsing so as to achieve economic growth prospects in the U.S and the global economy as well. It is therefore for the above purpose that the U.S government was forced to act by introducing a range of emergent and short-term strategies to streamline the situation. The study concludes by stating that economic recession has an adverse effect on economic growth, and there is a need to use multiple ranges of strategies to eliminate the challenge.
Introduction
The great recession refers to the 2007 financial crisis that was experienced in the U.S and later spreading its impacts to different parts of the world. The aspect had an adverse impact on the economic growth of the country with a destruction of over $20 trillion worth of financial assets (Sara, 2014). Another impact that was experienced in the country includes increased unemployment rate. Apparently, the financial crisis was a global challenge that impaired the economic growth of different countries. In the U.S alone, it led to a decrease in GDP growth by 2% in 2009 with over 100 million people worldwide leaving under extreme poverty (Liu et al., 2013). The above paper seeks to evaluate the different short-term and long-term strategies used by various governments to bail out investment banks and corporations from the adverse effects of global recession.
Body
Short term strategies
The U.S. Federal Reserve was in charge of enacting the short-term measures as one way of solving the challenge. This dedicated effort to expand the money supply in the market, an aspect that intended to enhance economic development through improving productivity, creatin job opportunities and causing increased income. With reforms on the monetary policy to increase the money supply in the market, consumption was significantly increased. Other measures used by the government as short-term strategies include increased borrowing and spending to eliminate the adverse effects realized from the crisis.
In 2008, the Fed and other central banks across the world bought about US$2.5 trillion of government debt, injecting a lot of cash into the market, which was the largest ever to be experienced in history (Balluck et al., 2016). Apparently, the U.S government has enacted different bail-out strategies to help financial institutions to recover from the adverse effects of the recession, which include asset purchases, and direct spending. With a rationale to stimulate economic growth, the Fed has in the recent past engaged in expanding credit into the market, and purchase of mortgage securities. Moreover, most governments enacted policy measures to cut down the interest rates in most countries as one approach through which they would encourage borrowing, hence leading to more investment.
Advantages
Different governments wished to prevent the financial institution from going into a bust, a feature that would worsen the situation. The policy measure to cut down the interest rates encouraged more borrowing, leading to increased level of investment in different economic sectors (Balluck et al., 2016).
Disadvantages
Some of the bail-out strategies that were implemented by the Fed in the U.S to manage the crisis such as increased taxation on the people revenue have had an adverse effect on the people to date. Moreover, the bail-out strategy to increase money supply into the market as a strategy to encourage higher rates of investment is considered by critics to contribute to more inflation.
Long term
The long-term objectives were sought to prevent the occurrence of such a situation anytime in the future, which includes partial reversion of financial deregulation that contributed to the development of the crisis. This includes reforms to the financial sector on a global scale and incorporates, strengthening the risk management ability of most financial corporates (Gurdgiev et al., 2016). The new reforms include an effort to enhance efficiency and restore growth in the respective organizations.
This came with strive to improve the financial sector by strengthening effective supervision and regulation of the institutions to prevent such occurrences in the future. Different measures have been proposed over the years to curb the jeopardy of financial distress (Braude, 2013). For example, it is a requirement for the traditional banks to maintain a set amount of capital and maintain a set of standards as far as liquidity is concerned. Moreover, the fact that consistent stress testing will be accomplished helps banks and regulators in making an informed decision during such occasions to prevent future crises. For sustainability purpose, the banks enacted policy issues to oversee the financial operations of the different monetary institutions to avoid any risk to the business whatsoever.
Advantages
Some of the benefits of the long-term plans as outlined in the paper include the development of practical policy issues that regulates financial institutions to operate in a more efficient way and restore growth. Moreover, the reforms help eradicate any form of risks that may be associated with the business that may incapacitate efficient operation of the firm. The long term plans help detail the mandate of Fed and other regulatory agencies in the effective management of the financial institutions across the globe and devise better strategies that will stimulate economic growth (Arestis & Sawyer, 2016).
Disadvantages
The proposed reform strategies are difficult to implement as various stakeholders are involved; hence, everyone will offer different directions for the strategy so as to meet their needs.
Conclusion
The economic recession has adverse effects on the economic growth of any country as it leads to increased inflation, unemployment rate and decreased productivity. It is, therefore, worth appreciating that development of remedy action to bail out financial institutions as evidenced by the study has a significant contribution. Both short and long-term strategies help restore efficient operation of organizations and should thus be encouraged despite their minute demerits, which can be managed whatsoever.
References
Arestis, P., & Sawyer, M. (2016). Emerging economies during and after the great recession: 2016. United Kingdom: Palgrave Macmillan
Balluck, K., Galiay, A., Ferrara, G., &Hoggarth, G. (2016). The small bank failures of the early 1990s: another story of boom and bust. Bank of England Quarterly Bulletin, 56(1), 41-51.
Braude, J. (2013). The Great Recession : Lessons for Central Bankers. Cambridge, Mass: The MIT Press.
Gurdgiev, C. T., Leonard, L., & Gonzalez-Perez, M. (2016). Lessons From the Great Recession: At the Crossroads of Sustainability and Recovery. Bingley, UK: Emerald Group Publishing Limited.
Liu, W., Kolari, J. W., Tippens, T. K., & Fraser, D. R. (2013). Did capital infusions enhance bank recovery from the great recession?. Journal of Banking & Finance, 37(12), 5048-5061.
Sara, H (2014). The great recession: Unprecedented economic challenges (2007–Present). Guide to U.S. Economic Policy.
