Federal Reserve Chairman Ben Bernanke informed Treasury Secretary Henry Paulson on September 17, 2008, that a considerable amount of public money will be required to stabilize the financial sector. On September 19, short trading of 799 financial stocks was outlawed. Large short positions were also required to be disclosed by companies. The Treasury Secretary also stated that money market funds would form an insurance pool to protect themselves against losses, and that the government would purchase mortgage-backed assets from banks and investment firms. As of September 19, 2008, initial estimates of the cost of the Treasury bailout suggested by the Bush Administration’s draft legislation ranged from $700 billion to $1 trillion US dollars. On September 20, 2008, President George W. Bush requested authorization from Congress to spend up to $700 billion to purchase distressed mortgage assets and stem the financial crisis. The crisis worsened when the bill was rejected by the US House of Representatives, resulting in a 777-point drop in the Dow Jones. Despite the fact that Congress enacted a revised version of the plan, the stock market continued to tumble. Instead of distressed mortgage assets, the first half of the bailout money was utilized to acquire preferred shares in banks. This contradicted some economists’ claims that purchasing preferred shares is considerably less effective than purchasing regular stock.
The new loans, purchases, and liabilities of the Federal Reserve, Treasury, and FDIC, as of mid-November 2008, were estimated to total over $5 trillion: $1 trillion in loans to broker-dealers through the emergency discount window, $1.8 trillion in loans through the Term Auction Facility, $700 billion to be raised by the Treasury for the Troubled Assets Relief Program, and $200 billion in insurance for the GSEs.
As of March 2018, ProPublica’s “bailout tracker” showed that $626 billion had been “spent, invested, or loaned” in financial system bailouts as a result of the crisis, with $713 billion repaid to the government ($390 billion in principal repayments and $323 billion in interest), indicating that the bailouts generated $87 billion in profit.
What presidents have served amid economic downturns?
Ten of the last eleven recessions began under Republican presidents, according to CNN, and “every Republican president since Benjamin Harrison, who served from 1889 to 1893, had a recession begin in their first term in office.” The National Bureau of Economic Research (NBER) tracks the start of recessions, and the following list includes the president in office at the time, as well as their political party:
According to Blinder and Watson, the economy was in recession for 49 quarters between 1949 and 2013, with 8 quarters under Democratic leadership and 41 under Republican leadership.
Who ended the Great Recession of 2008?
Congress passed the Struggling Asset Relief Scheme (TARP) to empower the US Treasury to implement a major rescue program for troubled banks. The goal was to avoid a national and global economic meltdown. To end the recession, ARRA and the Economic Stimulus Plan were passed in 2009.
During the Great Recession of 2009, who was president?
In the midst of the Great Recession and a severe financial crisis that began in 2007, President Barack Obama was inaugurated in January 2009. His government continued the previous administration’s financial bailout and auto sector rescue, and promptly implemented the American Recovery and Reinvestment Act of 2009 (ARRA), a $800 billion stimulus package that featured a mix of new spending and tax cuts. By March 2010, the private sector had started adding jobs on a monthly basis, a trend that lasted until the conclusion of his term, although public sector employment recovered more slowly due to budget constraints.
President Barack Obama then signed the Patient Protection and Affordable Care Act (ACA), also known as “Obamacare,” into law in 2010. By 2016, the law has provided health insurance to around 24 million individuals through a mix of state healthcare markets and a Medicaid expansion. It reduced the number of people without health insurance from over 16 percent in 2010 to around 9 percent in 2015. During his time in office, healthcare expenses remained stable. Premiums for individuals covered by employers, for example, increased by 69 percent from 2000 to 2005, but only by 27 percent from 2010 to 2015.
After subsidies, approximately 70% of consumers on the ACA marketplace exchanges could get insurance for less than $75 per month by 2017. The ACA was evaluated by the Congressional Budget Office (CBO) several times, and it was rated as a moderate deficit reducer because it included tax hikes primarily on high-income taxpayers (roughly the top 5% of the population) and reductions in future Medicare cost increases, which offset subsidy costs. The bill received no Republican votes in the House or Senate.
Obama signed the DoddFrank Wall Street Reform and Consumer Protection Act in 2010 to address the banking sector excesses that led to the crisis. This law restricted bank risk-taking and replaced an old regulatory framework that was inadequate in monitoring the non-depository or shadow banking sector, which had surpassed traditional depository banking and was at the heart of the crisis. The Consumer Financial Protection Bureau was also established as a result of this legislation. However, unlike the Glass-Steagall Act, it did not break up the largest banks (which had become even larger due to forced mergers during the crisis) or separate investment and depository banking. Only a handful of Republicans in Congress voted in favor of the bill.
President Barack Obama had a majority in both the House and the Senate during his first two years in office, which coincided with the 111th United States Congress, which is widely regarded as one of the most productive Congresses in terms of legislation passed since Lyndon B. Johnson’s Great Society. The Republicans, on the other hand, captured the House majority in November 2010 and decreased the Democratic Senate majority. Following that, he faced either a divided or Republican Congress, confining his economic legislation to primarily financial issues.
The Great Recession caused federal government revenues to plummet to their lowest level in 50 years as compared to the size of the economy.
At the same time, spending on the safety net (including automatic stabilizers like unemployment compensation and disability payments) and stimulus programs skyrocketed.
As a result, the budget imbalance grew, raising serious financial issues.
As a result, a series of tense debates with the Republican Congress ensued.
With the economy on the mend and key budget measures passed, President Obama turned his attention to a new issue: income and wealth disparity. From 1950 to 1979, the top 1% of the population received around 10% of all income. However, by 2007, this had climbed to 24%, owing to a mix of globalization, automation, and regulatory changes that undermined workers’ negotiating power in comparison to capital (owners). During 2013, he called the rising economic disparity the “defining challenge of our time.” Starting in 2013, his tax increases for higher-income taxpayers lifted their effective tax rates, reducing after-tax income disparity while job creation remained strong.
Wealth inequality had risen in lockstep, with the top 1%’s share of wealth rising from 24% in 1979 to 36% in 2007. While household net worth in the United States increased about 30% from its pre-crisis peak in 2007 to 2016, majority of this increase went to the wealthiest 1% of the population, as it had done before his tenure. By 2015, the richest 1% possessed 42 percent of the world’s wealth.
With infrastructure investment to create middle-class jobs and a federally mandated raise in the minimum wage, President Obama aimed to alleviate inequality before taxes (i.e., market income). While the latter was defeated by the Republican Congress, due in part to his support, numerous states increased their minimum wages. In late 2015, the House and Senate enacted the Fixing America’s Surface Transportation Act, the largest infrastructure bill in a decade, in unusual bipartisan fashion.
Stock markets increased by 180 percent, corporate profits increased by 122%, auto sales increased by 85 percent, home prices increased by 24 percent, real GDP increased by 15%, the number of jobs increased by 8%, and the number of Americans without health insurance decreased by 39 percent from the start of his presidency in January 2009 to late 2016. The yearly government deficit fell by 58 percent, but the national debt increased by 88 percent.
When was the last time the United States experienced a recession?
The Great Recession lasted from December 2007 to June 2009, making it the longest downturn since World War II. The Great Recession was particularly painful in various ways, despite its short duration. From its peak in 2007Q4 to its bottom in 2009Q2, real gross domestic product (GDP) plummeted 4.3 percent, the greatest drop in the postwar era (based on data as of October 2013). The unemployment rate grew from 5% in December 2007 to 9.5 percent in June 2009, before peaking at 10% in October 2009.
The financial repercussions of the Great Recession were also disproportionate: home prices plummeted 30% on average from their peak in mid-2006 to mid-2009, while the S&P 500 index dropped 57% from its peak in October 2007 to its trough in March 2009. The net worth of US individuals and charity organizations dropped from around $69 trillion in 2007 to around $55 trillion in 2009.
As the financial crisis and recession worsened, worldwide policies aimed at reviving economic growth were enacted. Like many other countries, the United States enacted economic stimulus measures that included a variety of government expenditures and tax cuts. The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 were two of these projects.
The Federal Reserve’s response to the financial crisis varied over time and included a variety of unconventional approaches. Initially, the Federal Reserve used “conventional” policy actions by lowering the federal funds rate from 5.25 percent in September 2007 to a range of 0-0.25 percent in December 2008, with the majority of the drop taking place between January and March 2008 and September and December 2008. The significant drop in those periods represented a significant downgrading in the economic outlook, as well as increasing downside risks to output and inflation (including the risk of deflation).
By December 2008, the federal funds rate had reached its effective lower bound, and the FOMC had begun to utilize its policy statement to provide future guidance for the rate. The phrasing mentioned keeping the rate at historically low levels “for some time” and later “for an extended period” (Board of Governors 2008). (Board of Governors 2009a). The goal of this guidance was to provide monetary stimulus through lowering the term structure of interest rates, raising inflation expectations (or lowering the likelihood of deflation), and lowering real interest rates. With the sluggish and shaky recovery from the Great Recession, the forward guidance was tightened by adding more explicit conditionality on specific economic variables such as inflation “low rates of resource utilization, stable inflation expectations, and tame inflation trends” (Board of Governors 2009b). Following that, in August 2011, the explicit calendar guidance of “At least through mid-2013, the federal funds rate will remain at exceptionally low levels,” followed by economic-threshold-based guidance for raising the funds rate from its zero lower bound, with the thresholds based on the unemployment rate and inflationary conditions (Board of Governors 2012). This forward guidance is an extension of the Federal Reserve’s conventional approach of influencing the funds rate’s current and future direction.
The Fed pursued two more types of policy in addition to forward guidance “During the Great Recession, unorthodox” policy initiatives were taken. Credit easing programs, as explored in more detail in “Federal Reserve Credit Programs During the Meltdown,” were one set of unorthodox policies that aimed to facilitate credit flows and lower credit costs.
The large scale asset purchase (LSAP) programs were another set of non-traditional policies. The asset purchases were done with the federal funds rate near zero to help lower longer-term public and private borrowing rates. The Federal Reserve said in November 2008 that it would buy US agency mortgage-backed securities (MBS) and debt issued by housing-related US government agencies (Fannie Mae, Freddie Mac, and the Federal Home Loan banks). 1 The asset selection was made in part to lower the cost and increase the availability of finance for home purchases. These purchases aided the housing market, which was at the heart of the crisis and recession, as well as improving broader financial conditions. The Fed initially planned to acquire up to $500 billion in agency MBS and $100 billion in agency debt, with the program being expanded in March 2009 and finished in 2010. The FOMC also announced a $300 billion program to buy longer-term Treasury securities in March 2009, which was completed in October 2009, just after the Great Recession ended, according to the National Bureau of Economic Research. The Federal Reserve purchased approximately $1.75 trillion of longer-term assets under these programs and their expansions (commonly known as QE1), with the size of the Federal Reserve’s balance sheet increasing by slightly less because some securities on the balance sheet were maturing at the same time.
However, real GDP is only a little over 4.5 percent above its prior peak as of this writing in 2013, and the jobless rate remains at 7.3 percent. With the federal funds rate at zero and the current recovery slow and sluggish, the Federal Reserve’s monetary policy plan has evolved in an attempt to stimulate the economy and meet its statutory mandate. The Fed has continued to change its communication policies and implement more LSAP programs since the end of the Great Recession, including a $600 billion Treasuries-only purchase program in 2010-11 (often known as QE2) and an outcome-based purchase program that began in September 2012. (in addition, there was a maturity extension program in 2011-12 where the Fed sold shorter-maturity Treasury securities and purchased longer-term Treasuries). Furthermore, the increasing attention on financial stability and regulatory reform, the economic consequences of the European sovereign debt crisis, and the restricted prospects for global growth in 2013 and 2014 reflect how the Great Recession’s fallout is still being felt today.
Who was responsible for the Great Recession?
The economic crisis was precipitated by the collapse of the housing market, which was fueled by low interest rates, cheap lending, poor regulation, and hazardous subprime mortgages. New financial laws and an aggressive Federal Reserve are two of the Great Recession’s legacies.
During the Great Depression, who was the president?
Franklin D. Roosevelt became President in the midst of the Great Depression, and he helped the American people restore hope in themselves. He instilled hope by promising swift, decisive action and declaring in his Inaugural Address that “the only thing we have to fear is fear itself.”
Is there going to be a recession in 2021?
Unfortunately, a worldwide economic recession in 2021 appears to be a foregone conclusion. The coronavirus has already wreaked havoc on businesses and economies around the world, and experts predict that the devastation will only get worse. Fortunately, there are methods to prepare for a downturn in the economy: live within your means.
What triggered the recession of 2008?
The housing bubble burst in 2007 and 2008, triggering a protracted recession that saw the jobless rate rise to 10.0 percent in October 2009, more than double its pre-crisis level.
In a downturn, where should I place my money?
Federal bond funds, municipal bond funds, taxable corporate funds, money market funds, dividend funds, utilities mutual funds, large-cap funds, and hedge funds are among the options to examine.
What was Obama’s contribution to the country?
Barack Obama’s term as President of the United States began on January 20, 2009, with his first inauguration, and ended on January 20, 2017. Obama, an Illinois Democrat, was elected president after defeating Republican contender John McCain in the 2008 presidential election. He was re-elected four years later, defeating Republican nominee Mitt Romney in the 2012 presidential election. Obama was followed by Donald Trump, a Republican who won the presidential election in 2016. He was the first African-American president, as well as the first multiracial, non-white, and Hawaiian president.
A significant stimulus package, a partial extension of the Bush tax cuts, health-care reform legislation, a big financial-regulation reform law, and the termination of a major US military presence in Iraq were among Obama’s first-term actions. Obama also named Supreme Court Justices Elena Kagan and Sonia Sotomayor, the latter of whom became the Supreme Court’s first Hispanic American. Until Republicans won a majority in the House of Representatives in the 2010 elections, Democrats controlled both houses of Congress. Following the election, Obama and congressional Republicans got into a long fight over government spending and the debt ceiling. The Obama administration’s anti-terrorism strategy downplayed Bush’s counterinsurgency strategy, relying more on host-government militaries and extending air strikes and special forces deployments. The military operation that culminated in Osama bin Laden’s murder on May 2, 2011, was orchestrated by the Obama administration.
Obama took moves to tackle climate change during his second term, signing a major international climate pact and an executive order limiting carbon emissions. Obama also oversaw the implementation of the Affordable Care Act and other laws signed into law during his first term, as well as the negotiation of a nuclear deal with Iran and normalization of relations with Cuba. During Obama’s second term, the number of American forces in Afghanistan decreased considerably, however American troops remained in Afghanistan throughout his presidency. Following the 2014 elections, Republicans took control of the Senate, and Obama continued to clash with them on government spending, immigration, judicial nominees, and other matters.