Financila Crisi Essay

1) What have been the policy response to the 2007-2009 crisis in US?

  The recent 2007-2009 crisis in the United State caused by the turn of the housing cycle in the United States, which imposed substantial losses on many financial institutions and shook investor confidence in credit markets.

Government policy responses to the crisis in the US, was mainly guided by the Federal Reserve actions.   After improving the macroeconomic environment through the Fed’s actions and tools, the US government respond also, by trying to promote market stability, and to advance structural repair to help for faster recovery from the recession.

The Federal Reserve has responded aggressively to crisis since its start in 2007.   Firstly, the Fed cut down on discount rates and federal rates by more than 400 basis points from 2007 thru 2009 till it become almost Zero%, and these actions for indeed helped to support employment and incomes during the first period of the recession. Unfortunately, cutting down the federal rates has helped to push inflation to reach one its highest levels in mid-2008, mostly reflected in the increase the of prices of oil which reached more than 150 US dollars per barrel. However, after the tremendous melt down of the global economy activities after the mid -2008, inflation was not the main concern since the demand on the different commodities decrease that push the general prices to decrease and inflation to decrease.

Secondly, one of the most important tools that the Fed was using during the recession is communication by informing the public about the future course of monetary policy and helps them to build their expectation about the fed rates.

Finally, the Fed tired to face the recession by using other than Feds rates tools by supporting the credit markets and to reduce financial strains by providing liquidity to the private sector, the Fed act as a lender help to provide provision of short-term liquidity to sound financial institutions,...