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2008-09 Recession

2008-09 Recession. The Government’s Response. 2000 Peak. 2006/07 Peak. 2008/09. The Path to the Financial Crisis. Banks won’t lend Today!. Government continues to put money into the Banking System. 700 Billion Dollar Bailout (TARP).

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2008-09 Recession

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  1. 2008-09 Recession The Government’s Response

  2. 2000 Peak 2006/07 Peak 2008/09 The Path to the Financial Crisis Banks won’t lend Today!

  3. Government continues to put money into the Banking System 700 Billion Dollar Bailout (TARP) TARP = Troubled Asset Relief Program and is a 700 billion dollar Government program to “fix” the U.S. banking system. Banks are technically “bankrupt” and are not lending money. (credit crunch). This is a major crisis and free markets cannot work without a functional banking system. While banks appear to be in better shape today than a month ago, they still are reluctant to lend and the Government plans to take additional steps to increase bank lending.

  4. President Obama’s Plan • In addition to TARP, President Obama has planned a 850 billion dollar • fiscal stimulus package. • This will include a combination of: • ↑ Government Spending • Tax Cuts • Infrastructure Spending on roads, bridges, tunnels, etc… • Incentives to business to invest in green technology

  5. The Federal Reserve • The Federal Reserve has responded to the financial crisis by lowering interest rates from 5.25% to 0.0%! • They hope this will lead more people to borrow money to buy homes and cars Ben Bernanke Chairmen of Fed Internet Bubble Collapse Housing Bubble Collapse

  6. Fighting the 2008-09 Recession GDP = C + I + G + (X-M) • The hope is that by: • Fixing the banking system • Raising Government Spending • Lowering Interest Rates • The economy will recover: • As people can get loans, consumption (C) should rise in GDP • As Gov’t ↑ spending (G) will rise in GDP • As confidence rises, business will invest more, (I) in GDP will rise • All of this should, in theory, eventually lead to new jobs being created!

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