(more in depth)
(a quick summary)
Summary:
Following their economic recession beginning late in 2007, the United States economy has been extremely frail. The entire economy of the U.S. faltered when the demand for housing drastically plummeted during the early stages of 2008. The recession saw the rapid nose-dive of federal interest rates. The rate offered by major banks plunged from a high of 4.25% in December 2007 to a measly 0.25% in December 2008. In an attempt to jump start the highly stagnant economy, the U.S. Federal Reserve has recently ordered the purchase of treasury bonds to the astonishing sound of $600Billion USD. The main purpose behind this massive transfer of money is to lower the cost for consumers and to encourage the increased purchase of goods and services. The bonds will be purchased in multiple installments over the next 8 months.
Connections:
My article is connected to Chapter 2 in the text as it relates to the financial statements produced by a entity and by extension the flow of cash within a business or corporation and the position of a business entity financially. By purchasing such a large amount of U.S. treasury bonds, the federal reserve is essentially handing the money over to the treasury for their own use. With the newly acquired funds, the U.S. treasury would then proceed on to inject funds into the economy as they see fit. It is hoped that by injecting financial funds into the economy, the effects of the economic recession would be lessened and new job opportunities created for the public. As a result, the financial position of the U.S. treasury will look much sounder than it had been previously.
Reflection:
The condition of the United States economy is still quite frail following their economic recession which began late in 2007. Pumping $600Billion USD into the economy may indeed help their situation but that is far from a given. Stimulus packages are not a recent thing. In fact, they have been around for decades. This theory of John Maynard Keynes’ (1883-1946) basically mentioned that if the economy isn’t doing too well, the government should increase the amount of money in circulation. Supporters of Keynesian economics believe that the extra money would stimulate the economy by providing more job opportunities for the public. Ideally, the unemployment rate would decrease and the newly employed individuals would spend their money on consumer goods which would in turn create more jobs. Oftentimes in life, things do not always go so smoothly. There could be a lot of serious complications for putting such a big sum of money into circulation. The German economy faltered and suffered from spiraling inflation following the conclusion of World War II as they printed large sums of money in order to meet reparation demands. The increased amount of money in circulation would further devalue the U.S. currency and the inflation level could potentially be pushed higher.
