The Great Recession

 The Great Recession

Written by: Gabby W. 

From 2007 to 2009, the economic activity took a sharp decline. It was considered one of the most devastating economic downturns since the Great Depression in the 1930s. The devastation was felt all over the world, but it hit hardest in the United States, so how did we get out of this period of stagnant economic growth?

To understand how to get out of this recession, government officials and economists first needed to understand what caused it. There was a great housing boom from the early 2000s to the mid-2000s. This period was called the housing bubble. People turned to the banks for loans in order to pay for their newly-bought houses. Banks became more lenient on who they lent their money to. People who had poor credit were receiving these loans as the bank's standards were lowered, but these high-risk loans had drastic consequences. As interest rates increased, these borrowers with poor credit were unable to pay their mortgages, or sell their houses for a profit. As a result of this, banks went into crisis. Since the housing market fell and the banks were in crisis, the stock market eventually crashed causing one-quarter of American families to lose at least 75 percent of their wealth, and more than half of all families lost at least 25 percent of their wealth.

How did the government respond to this now-formed recession? They implemented two key fiscal policy programs.

The first program that was set into place was the Troubled Assets Relief Program or TARP. This program focused on flooding money to troubled banks and businesses through purchasing assets and equity. The government planned to spend upwards of $700 billion on this program, but the amount later got reduced to $425 billion. This program halted the bankruptcy of major companies across the country such as American International Group (AIG), GM, Chrysler, Ford, and multiple banks. This in turn allowed for millions of people to keep their job and keep unemployment rates from rising substantially. Funds also went towards the Homeowner Affordability and Stability Plan which allowed for homeowners to make adjustments to their mortgage payments so that they were able to consistently pay and ward off any additional foreclosures. 

The second significant program that was put into place was the American Recovery and Reinvestment Act, or ARRA. Under the Obama administration, they introduced this program to stimulate consumer spending and restore confidence back into the economy. This act was composed of three main components. The first part of this act was to cut taxes for individuals, families, and businesses. Individuals saw tax cuts of $400 and families saw cuts of $800; small businesses got more tax deductions for equipment and more tax credits when they employed veterans and students. The second part of this act was increased spending on assistance programs. Social security benefits were increased by $250 and extended for an additional 33 weeks. It offered tax credits to students for college tuition, improved access to healthcare, and funding for several educational programs. The final major part of this act was to create jobs through infrastructure. It funded several public works projects such as transportation and mass transit projects, modernizing federal buildings, and water projects. 

Economic recovery didn’t happen overnight; it took five years after these fiscal policy programs were implemented for the country to be mostly recovered. The process was slow and uneven, but eventually, in 2013, household wealth had climbed to $66.1 trillion. This number represented a 91% recovery from the devastation. 

Personally, I feel that these packages were necessary to stimulate the economy. Without them, the economy wouldn’t have been able to get back on its feet. Thousands of both large and small businesses would have gone bankrupt and closed causing millions of Americans to lose their jobs. Unemployment rates would have skyrocketed and it would have been difficult to bring them down. Also, the housing market would have continued to be in crisis potentially leaving thousands without shelter.

Recessions are inevitable; they are a natural part of the economy. Sometimes, they come as a complete surprise as did our current recession as a result of the pandemic. As we see, similar to the recession in 2008, the government implemented fiscal policy; this time in the form of stimulus checks and the American Rescue Plan. There is a large chance that we will experience one again, but it is unlikely that we will see a recession identical to the one we experienced in 2008, but the economy is ever-changing so we must expect the unexpected.

Works Cited

Amadeo, Kimberly. “Did Obama's Stimulus Plan Work?” The Balance, 4 Oct. 2020, www.thebalance.com/what-was-obama-s-stimulus-package-3305625.

Amadeo, Kimberly. “Did TARP Help You or the Banks?” The Balance, 27 Nov. 2020, www.thebalance.com/tarp-bailout-program-3305895.

Amadeo, Kimberly. “The Great Recession of 2008: What Happened, and When?” The Balance, 1 July 2020, www.thebalance.com/the-great-recession-of-2008-explanation-with-dates-4056832.

Amadeo, Kimberly. “What Did ARRA Really Do?” The Balance, 17 Nov. 2020, www.thebalance.com/arra-details-3306299.

Cathie Ericson is a freelance writer whose work has appeared in a wide range of publications. “What Caused the Great Recession in 2008-and What Can We Learn From It?” Acorns, www.acorns.com/money-basics/the-economy/what-caused-great-recession-of-2008/.

History.com Editors. “Great Recession.” History.com, A&E Television Networks, 4 Dec. 2017, www.history.com/topics/21st-century/recession.

History.com Editors. “Troubled Asset Relief Program (TARP).” History.com, A&E Television Networks, 1 Feb. 2018, www.history.com/topics/21st-century/troubled-asset-relief-program.

Segal, Troy. “Did the Troubled Asset Relief Program (TARP) Save the Economy?” Investopedia, Investopedia, 29 Sept. 2020, www.investopedia.com/terms/t/troubled-asset-relief-program-tarp.asp.

Sep 13, 2018