The Failed “Practical” Steps in the United States
To tackle the crisis of 2008, three rescue plans of unprecedented magnitude were launched, the first by the Bush administration, and the latter two by President Obama.
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On October 3, 2008, with the specter of the collapse of the Lehman Brothers investment bank just a few weeks prior, the U.S. government enacted the Troubled Asset Relief Program (TARP). The government purchased “toxic” assets and equity from financial institutions to bail the financial sector out of a likely default. In that program alone, the government was permitted to spend up to 700 billion dollars to save its financial sector. However, that colossal amount of money would soon be seen as grossly insufficient as the crisis continued to escalate.
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On February 13, 2009, in the wake of TARP’s failure to secure the American economy, the Congress passed the American Recovery and Reinvestment Act of 2009 (ARRA) [20] at the urging of President Obama. The President believed that if he poured up to 787 billion dollars into the American economy, nationalized banks, lowered tax rates, and supported the financial industry he would resolve the crisis. He also tightened regulation of the financial industry to rein in the financial “wizardry” that had accelerated the popping of the bubble in 2008 and made it far more painful. ARRA failed, as well.
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In 2010, a second, bigger than the first, recovery plan was launched. It was called the American Recovery and Reinvestment Act, Federal Stimulus Funding in the January 2010 Financial Plan, [21] and relied on the same principles of increasing government deficit and pouring funds into the financial system, into firms and households. The American Recovery and Reinvestment Act was yet another failure.
But toward the end of 2011, President Obama launched a fourth, and different, kind of plan. The American Jobs Act [22] focused on the U.S. job market by offering 450 billion dollars’ worth of tax incentives. The results of that plan remain to be seen.
Along with the government, the Federal Reserve Bank (FED) is working to support the economy. It lowered the interest rate to nearly 0%, believing (based on the traditional laws of economy) that by doing so and keeping it there long enough, the American economy would be revitalized because cheap money encourages spending and taking loans, and thus the economy would recover from the crisis. The interest rate has been near zero for almost three years now with no signs of relief from the crisis. In fact, it is only worsening. The FED proceeded to launch two giant-size incentive stimulus plans, which included buying an unprecedented 70% of American government bonds. This also failed.