Current macroeconomic state in the US
According to Bernanke, (2009) the US economy is currently experiencing a stern reduction. As a result, employment opportunities have declined and, at the same time, the unemployment level has increased by 7.6 percent. The citizens’ expenditure has been restricted by a variety of issues that include the firm loaning terms, substantial loss of housing and fairness in wealth and the persistent scarcity of jobs.
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In addition, most businesses have reduced the operation capitals because of the fall in sales and the difficulty in obtaining a loan (Bernanke, 2009). The gross domestic product (GDP) declined in the first quarter of 2008 and passed on to the first quarter of 2009. The prices of energy and other commodities dropped in 2008 accompanied by a rising fringe of economic limp. As a result, the inflation pressure lessened as the general consumer price increase calculated on a yearly basis was almost to zero (Bernanke, 2009).
‘The Organization for Economic Co-operation and Development (OECD)’states that the major onset of the monetary slump was the crumpling of the global credit dealings and the resulting monetary crisis (Bernanke, 2009). It is noteworthy that the fiscal crisis was triggered by the disintegration of the credit marketplace in the US. Thus, it has affected the whole economy both directly through the housing construction and indirectly through its effects on the fiscal status of monetary organizations.
Most importantly, the building and sale of residential houses have reduced and the cost of housing has also declined prompting a closure of the housing industry in the future. The fiscal crisis has led to the placing of some government owned enterprises into conservatorship and some filling for bankruptcy. In addition, some companies have been bought by competitors while in distress status.
More over, the short term funding organizations have destabilized thus threatening the businesses of those investors who rely on them for the funding of their businesses. Whole sale banking has also been affected resulting in an increase of the loaning costs from banks. It is essential to note that the onset of recession in the United States came with the augmentation of the mortgage rates and collateralized debt obligations (CDO). The graphical representation below shows the estimated collateralized debt obligations (OECD, 2001).
Response of the congress and Federal Reserve
Bernanke (2009) reveals that it is high time the government realizes the significance of giving loans to businesses and homes from monetary institutions. As a result, the congress should pass and enact necessary laws that will even out of the economy. These acts are meant to give the treasury the authority to purchase shares in the banking institutions with an aim of boosting their capital foundation.
The federal district insurance cooperation (FDIC) is obligated to introduce a provisional liquidity guarantee program that lengthen its assurance of bank legal responsibility that include superior unsecured compulsion and all non interest demeanor transaction deposit. Furthermore, the treasury in collaboration with the FDIC and Federal Reserve should offer loan packages to the large banks and lending institutions to stabilize them.
The “Federal Open Market Committee” (FOMC) should relieve financial policy to include a rate cut in synchronization with other key central banks (Bernanke, 2009). Similarly, the Federal Reserve should also ease the loaning convention as the federal pecuniary rates are low.
The Reserve should procure organization debt and organization mortgage backed securities, as this will perk up mortgage market performance and up hold the housing market. In addition, the Federal Reserve should also set up new loaning organizations and enlarge the existing organizations to facilitate the flow of loans to homes and businesses. Currently, the Federal Reserve should ease the stress on the depository loaning facility by expanding the auction facility to enable banks to find the funds necessary to loan clients.
In addition, the Federal Reserve should also broaden its system of exchange lines with overseas banks to ease conditions in unified dollar endowment markets locally and overseas. In an effort, to securitize the markets so as to hold up the addition of loan to clients and diminutive businesses the Federal Reserve has to join the treasury to declare the Term Asset-Backed Securities loan facility (TALF) (Bernanke, 2009).
Bernanke, B. (2009). Semiannual Monetary Policy Report to the Congress. Web.
OECD. (2001). OECD Economic Outlook: December No. 70 Volume 2001 Issue 2. Paris. OECD Publishing