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Fixing the Economy

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In a sense, economic stimulus began long before the Economic Stimulus Package. It really started in August 2007, when the Fed responded to the subprime mortgage crisis by adding $24 billion in liquidity to the banking system. By September 2008, Congress approved a $700 billion bank bailout, now known as TARP. By March 2009, Obama proposed the $787 billion economic stimulus package. Learn how economic stimulus ended a global depression.
  1. Subprime Mortgage Crisis
  2. Bank Crisis
  3. The Great Recession
  4. Obama's Economic Stimulus Program
  1. Important Terms
  2. Stimulus Toolbox
  3. Other Economic Crises

Subprime Mortgage Crisis

In 2006, the subprime mortgage crisis erupted. Experts said low interest rates and the strength of the U.S. economy would restrict it to the housing industry. Instead, the subprime canary flew out of the coal mine, spreading seeds of crisis everywhere.

Bank Crisis

By August 2007, the Federal Reserve realized that bank lending was slowing down. It began expansive monetary policies to add liquidity to the economy. It didn't realize that the problem was credibility. The banks stopped lending because they didn't want each other's defaulted mortgages.

The Great Recession

The economy shrank .7% in the first quarter of 2008, signaling the start of The Great Recession. Unfortunately, experts didn't realize it until the third quarter, when the economy start a slump that lasted for four quarters in a row. The last time this happened? - The Great Depression of 1929.

Obama's Economic Stimulus Program

Even before he took office, Barack Obama had a well-formulated plan to fix the economy. As time went on, he and his team were challenged to creatively address one of the worst economic crises in modern times. But economic stimulus alone is not enough. Banks must revive lending to spur the small business growth needed to create new jobs.

Important Terms

The cause of the meltdown was deregulation of derivatives that were so complicated that even their originators didn't understand them. Find out what they are, how they work, and how they will muck up the economy for years to come.

Stimulus Toolbox

TARP, TALF, TAF - Throughout 2008, the Federal Reserve and the Treasury Department created many new programs to stave off financial collapse. Find out what these programs do. Learn how they have made the government the nation's bank - at least temporarily.

Other Economic Crises

The U.S. economy has suffered from many other economic crises. This gives us hope, because we learned more about how the economy works and became smarter about managing it. Without that knowledge, we would be in much worse shape today.

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