The financial crisis in the united states in the period 2007 2009

FINAL ASSIGNMENTINTERMEDIATE MICROECONOMICSBài tập lớn môn kinh tế vĩ mô: Khủng hoảng tài chính tại Mỹ giai đoạn 2007-2009. A country''s economy always has an economic cycle with three basic stages: recession, recovery, and development. The change in gross domestic product, calculated as the sum of final goods and services for the period under study, constitutes the three phases of an economy. People will rely on prominent indicators such as real GDP, employment rate, unemployment rate, consumption, interest rates ... to determine which stage of the cycle a countrys economy is in. The economic crisis is related to the period of economic recession, when the growth rate of the economy is a slowdown, the indicators of the economy also decrease, even if the growth is negative.

VIETNAM NATIONAL UNIVERSITY, HANOI VNU-UNIVERSITY OF ECONOMICS AND BUSINESS 🙞🙞🙞 FINAL ASSIGNMENT INTERMEDIATE MICROECONOMICS Topic: The financial crisis in the United States in the period 20072009 Student: Nguyen Xuan Mai Student code: 19050169 Date of birth: 11/10/2001 Class: QH-2019-E Kinh Te CLC Lecturers: Ph D Le Van Son Ha Noi, 07/2020 List of abbreviation iii List of tables, figures iv Introduction 1 Exordium Overview document Research objectives and subjects 3.1 Research objectives 3.2 Research subjects Methodology to achieve research objectives Discussion Chapter 1: The Theory of recession Chapter 2: Situation of the financial crisis in the US in the period 2007-2009 2.1 Reasons 2.1.1 Crisis caused by subprime lending 2.1.2 Housing bubble phenomenon 2.1.3 Securitization 2.2 Impact of the crisis 2.2.1 Impact of economic growth 2.2.2 Impact on employment and unemployment rate 12 2.2.3 Impact on the world 12 Chapter 3: Solutions to the crises in the United States in the period 2007-2009 14 3.1 Federal Reserve System 14 3.2 The Government of the United States of America 14 3.3 Barack Obama's Plan 15 3.4 Challenges and shortcomings of the government when implementing policies 15 Conclusion 16 References 17 List of abbreviation Ordinal numbers Acronym Full form ARM U.S or US United States UK United Kingdom MBS Mortgage-backed securities ABS Asset-Backed Securities CDO Collateralized Debt Obligation IMF International Monetary Fund FED Federal Reserve System SEC Securities and Exchange Commission 10 CBO Congressional Budget Office 11 GDP Gross Domestic Product 12 TAF Term Auction Facility 13 TALF Term Asset-Backed Securities Loan Facility 14 EESA Emergency Economic Stabilization Act 15 ARRA American Recovery and Reinvestment Act 16 TARP Troubled Asset Relief Program List of tables, figures Figure 2.1: Real estate price fluctuations from 2000 to 2011 (source: Internet) Figure 2.2: Household debt status from 2000 to 2012 (% of GDP, source: Internet) Figure 2.3: U.S Securitization Issuance: Agency and Nonagency (In billions of U.S dollars) Figure 2.4: Securitization (Source: Science Direct) Figure 2.5: Issuance of Securitized Products (Billions of U.S dollars) Figure 2.6: Financial Assets – U.S Household and Non-Profit Organization ($ Trillions) 10 Figure 2.6: Dow-Jones Industrial Average (Source: Internet) 10 Figure 2.7: GDP per capita growth of United States (2005-2020) (annual %) 11 Figure 2.8: Exports of goods and services of United States (2004-2019) 12 Figure 2.9: Oil price (USD/barrel) (Source: Internet) 13 Figure 2.10: Public debt to GDP ratio for selected European countries – 2008 to 2012 13 Figure 3.1: Difference between potential GDP in CBO’s and actual GDP without and with the impact of the American Recovery and Reinvestment Act of 2009 15 Figure 3.2: Unemployment rate of United States from 1999 to 2020 16 Introduction Exordium A country's economy always has an economic cycle with three basic stages: recession, recovery, and development The change in gross domestic product, calculated as the sum of final goods and services for the period under study, constitutes the three phases of an economy People will rely on prominent indicators such as real GDP, employment rate, unemployment rate, consumption, interest rates to determine which stage of the cycle a country's economy is in The economic crisis is related to the period of economic recession, when the growth rate of the economy is a slowdown, the indicators of the economy also decrease, even the growth is negative Understanding the causes, effects, and government interventions are essential to the recovery of the economy Since ancient times, in the world, there have been many crises and economic recessions with different characteristics, big and small, affecting the economy of a country or the world, which is inevitable The US is a country with the leading developed economy, but, inevitably, the US is also a country with many economic recessions, including the great recession, the great crisis that spread to other areas of the world In previous recessions, it is impossible not to mention the 20072009 crisis, which involved many financial sectors, had many impacts on the US economy Although it happened more than ten years ago, when it comes to people, people will still be afraid because of its impact, which is considered a disaster to humanity, on the global economy To better understand the causes and effects of the financial crisis, the government's intervention to regulate the catastrophe and recover the economy, I have chosen this topic to learn and dissociate, to have a comprehensive overview of the US economic crisis in 2007-2009 Overview document The 2007-2009 crisis in the United States was a topic of great interest as soon as it happened, and there were many research articles on this issue later It can say that research and analysis related to economic issues, especially the recession crisis, always attract everyone's attention: like Brian Duignan's (2019) study - talking about the crisis in the United States In the 2007-2008 period, this was a crisis caused by many factors that accumulated, in which the main reason was the subprime mortgage lending of banks The root cause of a change in the policies of reducing lending rates from around the beginning of 2001, and other monetary policies in 2004 The financial changes that led to the crisis and caused severe consequences for the US economy, affecting the following years The financial fluctuations led to the crisis and caused severe consequences for the US economy, affecting not only at that time but also in the sequent years One of the causes of the financial crisis in the United States from 2007 to 2009 was an investment in the U.S home market (Duca, J V., Muellbauer, J., & Murphy, A., 2009, in "Housing markets and the financial crisis of 2007–2009: Lessons for the future" Through analyzing the housing market and the crisis, we saw the unsustainability of credit standards and the "housing bubble" phenomenon in the United States The impact of changing mortgage and interest rate policies affects prices in the home-buying market From there, learn the lessons of the importance of changing fiscal policies, housing policy regulations, house prices, and global financial balance Vuk Vukovic (2010) focused on the political economy of the financial crisis caused by sub-standard mortgage lending in the United States and talked about the measures that policymakers adopted, combining the still-action of the financial lobby Besides analyzing the causes of the "Great Recession" 2007-2009, Edward J Schoen (2016) studied five factors during the financial crisis: the impact, causes, measures of the Government, behavior, and two laws enacted The "American Recovery and Reinvestment Act" is one of the Government measures (Levy, M., 2017, April 27) on United States reinvestment and reinvestment laws in 2009, when the U.S was suffering as a result of the financial crisis The unemployment rate in the US increased rapidly, the U.S Congress passed a measure to stimulate the economy create more jobs and reduce the unemployment rate signed by President Black Obama when he took office as United States President period 2009 Passed on February 13, 2009, it will offer a $787 billion package for economic recovery Although it was adopted, the policy was criticized by Republicans, who argued that the policy was not reasonable and would not work Although there were many difficulties in the real process, by the end of the third quarter of 2009, the situation had shown positive signs, in the years 2010 the unemployment rate had decreased slightly In general, the crisis affected not only the United States but also other countries in the world Research objectives and subjects 3.1 Research objectives Analyze the period of economic crisis 2007-2009 in the US, find out the causes of the crisis The crisis had a severe impact on the United States and the world economy In the face of that difficulty, the US government took measures to prevent the recession and restore the economy These are my goals in writing this essay 3.2 Research subjects Target: Any country in the world at the time an economic crisis occurred - the United States during the 2007-2009 crisis These issues will be explored and clarified through the following chapters: Chapter 1: Theory of economic recession Chapter 2: Situation of the economic crisis in the US in the period 2007-2009 Chapter 3: The Government's Solution Methodology to achieve research objectives Synthetic method: is a method of collecting, reading documents, researching from previous research articles, distilling information on the economic crisis, recession issues in the economy Statistical and analytical methods: data statistics, table analysis, data reference, data inheritance for the analysis of economic recession, causes of recession and crisis, the current state of the problem in the United States, and its impact Discussion Chapter 1: The Theory of recession The recession will be associated with a lot of problems in the economy, it causes negative economic growth, affecting both national debts, import and export activities so it is necessary to understand the indicators consumption, factors related to the economy to be able to analyze, better understand the economic recession and crisis The concept of crisis, widely used in various industries and daily languages, is derived from the Greek word "krisis" Economic crises are prolonged economic instability that cannot be regulated by the reproduction process in the economy, causing wide-scale or narrow-scale effects and consequences It can happen in any sector of the economy, a spike in inflation or unemployment, it could be a stock market crash, or a series of bank failures Economic crises experienced in national economies are often the product of negative declines in economic and political cycles and structures But it can say that the economic crisis is a general result of macroeconomic instability According to IGI Global “Economic crisis can be defined as the wild fluctuations, outside the acceptable limits of change, in the prices or supplies in any markets of commodity or services, or factors of production” “Financial crisis refers to particular extreme shock in the financial system which leads to disruption of the financial system's function Financial crises are such as banking crisis, currency crisis, debt crisis, stock market crash, and speculative bubble and burst”- IGI Global A financial crisis is a financial market disruption, typically associated with falling asset prices and bankruptcy between debtors and intermediaries, spreading across the financial system, and changing the ability of markets to allocate capital A recession is a period when the economy of a country is inefficient, production and business are at a low level, decrease, and the unemployment rate increases A recession can be a mild decline in economic activity in a single country that lasts months, a long-lasting downturn with global ramifications that last years, or anything in between According to the subject of macroeconomics, the causes leading to recessions and economic crises are always controversial among economists as it has internal and external factors of the economy Recessions occur when the balance between supply and demand is negatively disrupted There is a mismatch between the number of goods people want to buy, the number of products and services manufacturers can offer, and the price of goods and services sold, resulting in an economic slowdown The supply-demand relationship is represented by inflation and interest rates Inflation occurs while the value of cash decreases In fact, a low inflation fee is a concept to inspire financial activity Still, inflation is not always a horrific thing But excessive inflation can each motivate issues for a financial system and subsequently cause a recession The interest rates reflect the cost of borrowing for individuals and businesses; an annual percentage of loan borrowers pay to their creditors until the loan is repay Low-interest rates mean companies can borrow more money to invest in more projects, high-interest rates, increase costs, diminish economic activity Fluctuations of inflation and interest rates are influenced by factors: such as natural disasters, war, and geopolitics Economic crisis, economic recession, and financial crisis are all related and interact with each other, causing the economy to fall into a crisis Besides, economic development can still cause a recession, wrong thinking, and behavior, or when people rely heavily on low-interest debt, government support will easily cause a recession Obviously, to recover the economy, the government must use appropriate macro policies Fiscal policy determines the level of taxes and public spending that directs the economy to productive output and employment, helping to bring the economy into equilibrium Monetary policy is attached to the banking system: helping to regulate circulation, manage growth, control inflation, maintain stable market prices and exchange rates, and create jobs Price and income policy controls inflation directly, in addition to trade policy and exchange rate policy Chapter 2: Situation of the financial crisis in the US in the period 20072009 The United States has the world's leading developed economy but also a country with many crises and recessions The 2007–2009 financial crisis was the largest after the Great Recession of 1929–1939 The cause is considered the next "Great Recession" - a human disaster because it involves many financial sectors, seriously affecting the economy, spreading globally 2.1 Reasons According to Professor Alan S Blinder, seven key factors contributed to the financial crisis of 2007-2009: “Inflated asset prices, especially of houses (the housing bubble) but also of certain securities (the bond bubble); Excessive leverage (heavy borrowing) throughout the financial system and the economy; Lax financial regulation, both in terms of what the law left unregulated and how poorly the various regulators performed their duties; Disgraceful banking practices in subprime and another mortgage lending; The crazy-quilt of unregulated securities and derivatives that were built on these bad mortgages; The abysmal performance of the statistical rating agencies, which helped the crazy-quilt get stitched together; and The perverse compensation systems in many financial institutions that created powerful incentives to go for broke (Blinder 2013, pp 27–28)” The causes of the crisis are different I will analyze a few main reasons 2.1.1 Crisis caused by subprime lending A subprime loan is a form of mortgage loan where the borrower is someone who does not have the necessary conditions to get a normal loan This form is usually for subjects with low reputation: unstable job, poor, have a history of the bad debt or substandard payments This type of loan is characterized by high risk, wide risk spread, and high liquidity Between mid-2000 and late 2001, the Federal Reserve and the U.S Central Bank reduced the Federal funds rate 11 times from 6.5% to 1.75%, causing banks to expand with low-interest, high-risk mortgage loans for those who not qualify for basic loans Leading to a significant increase in the number of transactions and purchases of consumers, especially for housing, the "Housing Bubble" appeared To prop up the economy, the Federal Reserve System kept short-term interest rates unusually low in 2003 and 2004, resulting in home mortgage rates at historically low levels Rising house prices have facilitated home refinancing Banks have expanded with adjustablerate mortgages (ARM), starting to replace the standard 30-year, fixed-rate, 20% off the mortgage loan, and provide borrowers with attractively low-interest rates that are kept relatively low for a period of time and floats, if home prices continue to rise subprime borrowers can protect themselves against payments high mortgage payments by refinancing, taking out a home equity loan, or selling the home at a profit and paying off their mortgages Mortgage loans are on the rise, attracting low-income people 2.1.2 Housing bubble phenomenon It can be understood that the phenomenon of the Housing Bubble is when the price of a house exceeds its true value at present For some reason, housing prices are pushed much higher, which means that at any point in time housing liquidity is no longer available and will lead to a housing market crash, crisis panic The phenomenon of "bubbles" in the market is not new in the US, the Dot-com bubble (stock market bubble) soon appeared and collapsed in 2001 causing the economy to go into recession slight, due to the monetary policies introduced to restore the economy stimulated the demand of the real estate market At the same time, financial institutions and banks have more subprime loans, high-risk loans This leads to a housing bubble, speculation in the housing market The phenomenon is starting to look like a normal classic real estate bubble, so people don't seem to worry about it Figure 2.1: Real estate price fluctuations from 2000 to 2011 (source: Internet) Housing prices have been doubled in the United States, 2.5 times in France, three times in Spain and the UK, and four times in Ireland At the same time, the amount of debt of households also skyrocketed The signal explosion for households and the miscellaneous property appreciation escalated without a deterrent effect: the rise in debt was "solved" by the rise in prices heritage one can earn And the rise in real estate prices, which not soften the situation of buyers as is the case in a "classic" goods market, on the contrary, attract more and more buyers Figure 2.2: Household debt status from 2000 to 2012 (% of GDP, source: Internet) By 2005, interest rates began to gradually increase, and qualified borrowers understood that price reductions led to lower home prices Due in part to higher interest rates, most subprime borrowers most of whom hold adjustable-rate mortgages (ARMs), cannot pay off their accounts They are also unable to save on their own, they were previously able to profit from borrowing money based on the added value of their home or by selling their home As the number of foreclosures increased, banks stopped making standard mortgages, which further reduced demand and prices As the subprime mortgage market was about to explode, many banks found it hard to put their assets in the form of subprime loans or bonds created from subprime loans along with other forms of mortgage Another consumer debt is less risky, other reasons are MBS subprime loans, difficult to track, disputes between banks, and bank-related credit freeze Leading to many important consequences related to both costs and investments of businesses and the real estate market 2.1.3 Securitization Figure 2.3: U.S Securitization Issuance: Agency and Nonagency (In billions of U.S dollars) Securitization is the process of combining and restructuring illiquid assets with high future cash income such as receivables, debts converted into bonds and offering transactions on the market In other words, securitization is the transformation of credit facilities into securities, issued to the public, creating favorable conditions for investors to buy and sell Securitization is usually conducting in two groups of assets: financial assets that are not mortgaged by real estate and loans that are mortgaged by real estate There are corresponding types: Mortgage-backed securities – MBS, AssetBacked Securities – ABS, CDOs Securitization began to appear in the early 1970s in the United States This technique evolved from the securitization of residential mortgages by two government-guaranteed institutions, Fannie Mae, and Freddie Mac, to gradually expanding and evolving into credit card receipts and auto loans According to Vietnam banking magazine: “If in some countries, securitization is considered as one of the solutions to deal with bad debts for the commercial banking system, in the US, securitization is the cause of bad debt bad debt and led to a crisis for the country's banking system" Figure 2.4: Securitization (Source: Science Direct) (Sources: IMF staff estimates; and the Securities Industry and Financial Markets Association.) Due to the change of rigid traditional loan procedures and simpler lending processes, subprime loans are on the rise Banks pool hundreds or even thousands of subprime mortgages and other less risky forms of consumer debt and sell them on capital markets like stocks and bonds to banks and investors other funds, including hedge funds and pension funds Bonds primarily consist of mortgages known as MBS, which allow their buyers a share of the interest and principal on the underlying loans Selling subprime mortgages like MBS is seen as a good way for banks to increase liquidity and reduce risk on loans, buying MBS is seen as a good way for banks and investors to diversify portfolios and earn money Offsetting high-risk, non-standard loans are usually loans with high interest rates or borrowers must borrow at a flexible rate (ARM) Although the monthly interest payments have gradually increased over time, homebuyers not feel the risk because the continued rise in home prices allows them to pay off their debt very simply by paying off debt how to borrow more Lenders also not maintain debts on their books but sell them to other institutions to securitize and sell to securities investors As a result, mortgage lenders kept getting cash and continued to create similar loans, driving up home prices; a new cycle began Between 2000-2007, the number of real estate loans in the US tripled (Thornton, 2008), the amount of mortgage debt nearly doubled (The Financial Crisis Inquiry Commission, 2011) In May 2006, a housing credit crisis occurred because many issuers or asset portfolios related to MBS and CDO collapsed In August 2007, the subprime mortgage crisis broke out in the US without any warning The crisis spread to other major financial centers such as London, Tokyo, Paris, Frankfurt Figure 2.5: Issuance of Securitized Products (Billions of U.S dollars) (Source: JPMorgan Chase; Inside Mortgage Finance; European Securitization Forum; and IMF staff estimates and calculations) 2.2 Impact of the crisis The first time many large banks have fallen into this type of mortgage lending crisis This crisis has had a strong impact on both the financial system and the real economy The US financial regulators, from the US Federal Reserve (FED), the Securities and Exchange Commission (SEC) to the Treasury Department, had to step in to deal with the crisis By 2007, the severe drop in the value of MBS caused huge losses at many banks, hedge funds, and mortgage lenders and forced several large and well-known companies to liquidate their funds invest in MBS to get government loans, to find mergers with healthier companies, or to declare bankruptcy Even companies that didn't go bankrupt suffered billions of dollars in losses, as the MBS in which they had invested so much has now been downgraded to worthless assets by the rating agencies On February 26, former Fed Chairman Alan Greenspan warned that a recession was possible later in 2007 He also mentioned that the U.S deficit was a big concern His comments triggered a widespread stock exchange sell-off on February 27, but the Fed Ignores It Since the subprime lending event appeared in many other countries, especially Western European countries, the collapse in the U.S will certainly affect the countries involved and spread to the world In April 2007 New Century Financial Corp, one of the biggest subprime lenders, filed for bankruptcy, and shortly afterward many other subprime lenders ceased operations Because they might not fund subprime loans through the sale of MBS, banks stopped lending to subprime customers, causing home sales and residential prices to say no further, which discouraged home buying even amongst consumers with prime credit ratings, further depressing sales and costs In August, France’s largest bank, BNP Paribas, announced billions of dollars in losses, and another large U.S firm, American Home Mortgage Investment Corp, declared bankruptcy Two hedge funds managed by U.S investment bank Bear Stearns announce losses after making bad bets on securities backed by subprime loans They sell $4 billion of assets solving problems investor redemptions and expected margin calls July 10, Credit rating firm Standard & Poor's said it's going to cut ratings on some $12 billion of subprime debts German regulators say they're looking into a $17.5 billion funding vehicle of German depository financial institution Sachsen LB, raising concerns about bank conduits and bank-sponsored structured investment vehicles heavily keen on short-term finance October, Swiss bank UBS AG said it might write down $3.4 billion of assets and record its first quarterly loss in nine years Citigroup said it expected third-quarter income to fall by about 60 percent 2.2.1 Impact of economic growth This crisis severely affected the economy of the United States, causing a series of large financial institutions to collapse The International Monetary Fund estimates that major US and European banks lost more than $1 trillion to toxic assets and from bad loans between January 2007 and September 2009 These losses are expected to amount to $2.8 trillion between 2007 and 2010 Losses by US banks are forecasted; European bank losses would amount to $1.6 trillion The IMF estimates that US banks lose about 60%, but UK and Eurozone banks only 40% Between mid-2007 and late 2008, Americans lost more than a quarter of their net worth In early November 2008, the broad US stock index-the S&P 500, was down 45% from its 2007 high Housing prices were down 20% from their 2006 peak, with futures markets down This signals a potential drop of 30–35% Total home equity in the United States, worth $13 trillion at its peak in 2006, fell to $8.8 trillion in mid-2008 and continued to decline into late 2008 Total retirement assets, America's second-largest household wealth, fell 22%, from $10.3 trillion in 2006 to $8 trillion in mid-2008 During the same period, savings assets, and investments (besides retirement savings) lost $1.2 trillion and retirement assets $1.3 trillion These losses totaled $8.3 trillion The indexes all fell from 2007 to the first quarter of 2009 Figure 2.6: Financial Assets – U.S Household and Non-Profit Organization ($ Trillions) (Source: Federal Reserve Flow of Funds Report 2009) Figure 2.6: Dow-Jones Industrial Average (Source: Internet) Looking at the chart, we can see that the Dow-Jones industrial average since the end of 2007 has been on a continuous downward trend: “The Dow opened the year at 12,474.52” It rose through early 2007, despite growing concerns about the subprime mortgage crisis On November 17, 2006, the U.S Department of Commerce warned that the number of new home purchase permits for October was 28% lower than the previous year But economists don't think the housing decline will affect the rest of the economy After that, the index always fluctuated but in general, tended to strongly decrease As of September 2008, “the 168-year-old investment bank Lehman 10 Brothers, with $639 billion in assets, filed the largest bankruptcy in U.S history” after the collapse of Lehman Brothers, money market funds lost $196 billion By November 2008, the Dow had plummeted to 7,552.29, a new low from 2006 back By September 2008, "168-year-old investment bank Lehman Brothers, with assets of $639 billion, filed for the largest bankruptcy in U.S history" following the collapse of Lehman Brothers, money market funds lost 196 billion dollars November 2008, the Dow had plummeted to 7,552.29; a new low from 2006 back As for real gross domestic product (GDP), real GDP plummets during recessions, especially since 2008 Figure 2.7: GDP per capita growth of United States (2005-2020) (annual %) (Source: The World Bank) According to The World Bank (figure 2.7), GDP per capita growth in the US has been declining since 2004 and plummeted during the 2007-2009 crisis Due to the impact of the financial crisis in 2007 reached only 0.912%/year, negative growth in 2008 and 2009 decreased to GDP per capita growth rate of -3.387%/year, which is the worst growth rate of U.S The United States from 1961 to 2009 This shows that the income and standard of living of the U.S people decreased during this period The total national debt of the United States grew from 66% of GDP in pre-crisis 2008 to more than 103% at the end of 2012 Martin Wolf and Paul Krugman argue that an increase in private savings and a decline in investment promote large private sector surpluses, resulting in sizable budget deficits According to CBO, “The Treasury recently reported that the federal government recorded a total budget deficit of $1.4 trillion in fiscal year 2009, about $960 billion more than the deficit incurred in 2008.” The crisis had a devastating impact on the U.S auto industry Vehicle sales peaked at 17 million units in 2005, only to 12 million units in 2010 Many businesses are bankrupt or at risk of bankruptcy, including the top three Chinese automakers United States Are General Motors, Ford Motor, and Chrysler LLC The leaders of these three automakers tried to lobby the U.S Congress for relief, but without success On December 12, 2008, GM announced the temporary closure of 20 of its plants in North America The crisis also made the U.S dollar appreciate Because the 11 US dollar is the world's most popular means of payment today, global investors have bought dollars to improve their liquidity, pushing the U.S dollar up This hurts U.S exports The growth percentage of U.S exports of goods and services also fell sharply between 2007 and 2009 Notably, 2009 decreased to -8.397%/year Figure 2.8: Exports of goods and services of United States (2004-2019) (annual % growth) (Source: The World Bank) 2.2.2 Impact on employment and unemployment rate The banking system is in crisis, a series of financial companies are bankrupt, leading to the US economy is "starved for credit", affecting the production of businesses shrinking, Contract cuts workers, workers lost their jobs On average, each month from January to September 2008, 84,000 US workers were losing their jobs As millions of people lost their homes, jobs, and savings, the poverty rate in the United States increased, from 12.5 percent in 2007 to more than 15 percent in 2010 During 2007–2010 poverty among those aged 18–24 reached about 22%, representing increases of percent and 4.7 percent, respectively Much wealth was lost as U.S stock prices—represented by the S&P 500 index—fell by 57 percent between 2007 and 2009 Altogether, between late 2007 and early 2009, American households lost an estimated $16 trillion in net worth; one-quarter of households lost at least 75 percent of their net worth, and more than half lost at least 25 percent Besides that, the rate of loss and recovery will also vary between people in prerecession society (as a percentage) it has been found that the rich lose less and recover faster The Great Recession is said to have exacerbated wealth inequality in the United States According to one study, in the first two years after the official end of the recession, from 2009 to 2011, the total net worth of the richest 7% of households increased by 28% while the net worth of 93% lower households decreased by 4% As a result, the richest 7% increased their share of the nation's total wealth from 56% to 63% It can be seen that it greatly affects the lives of the American people, widening the gap between the rich and the poor, affecting the next generations 12 2.2.3 Impact on the world The United States is a large country with a leading developed economy in world, the United States is also an important import market of many countries, so when there is a recession, it means that the export sources of the countries will be affected, damaged, especially Southeast Asian countries, and some economies such as Japan, Singapore, Taiwan Also fell into recession, slow growth of the global economy Especially, Europe has a close relationship with the United States, so it is seriously affected financially and economically: Germany fell into recession, United Kingdom, and France suffered from slow growth The economies of Latin American countries are also closely related to the US economy, so they are also negatively affected when short-term capital flows withdraw from the region and when oil prices plummet Ecuador is on the verge of a debt crisis The world economy slows down, reducing the demand for oil for production and consumption, as well as a sharp drop in oil prices Figure 2.9: Oil price (USD/barrel) (Source: Internet) It makes it difficult for oil-exporting countries Many stock markets around the world lost value seriously Investors shifting their portfolios to strong currencies such as the US dollar, Japanese yen, and Swiss franc made these currencies appreciate against many other currencies It is causes difficulties for the exports of the US, Japan, and Switzerland, and causing currency disturbances in some countries, forcing them to seek help from the International Monetary Fund The financial crisis of the United States led to general crises in Europe, to sovereign debt crises because many countries chose to rescue the banking system using taxpayers' money Apart from Germany, each of these countries has increased public debt-to-GDP ratios 13 Figure 2.10: Public debt to GDP ratio for selected European countries – 2008 to 2012 (Source Data: Eurostat) Chapter 3: Solutions to the crises in the United States in the period 20072009 The US government has combined fiscal and monetary policies along with many laws to prevent financial crisis, economic recession 3.1 Federal Reserve System The Fed intervened to regulate by lowering interest rates and increasing purchases of MBS, when the Crisis broke out in 2007, the U.S Federal Reserve continuously adjusted interest rates and conducted monetary easing to help increased liquidity accounts for financial institutions Interbank lending interest rate through many reductions has reached 0.25%, the interest rate is close to 0, an unprecedented low; it provides banks with a staggering $7.7 trillion in emergency loans At the same time, the Fed also conducts open market operations, injecting more than a trillion dollars into the economy by buying back U.S government bonds held by financial institutions in the country and lowering the discount rate In late 2007, the Fed was commissioned by the government to administer the Term Auction Facility program, which created various lending facilities for the Fed to lend directly to banks and nonbanks, specific types of world assets Specific mortgages with different credit quality: Term Auction Facility (TAF) and Term Asset-Backed Securities Loan Facility (TALF) By the end of 2008, Feb implemented a quantitative monetary easing policy In March 2009, the Federal Open Market Committee decided to increase the size of the Federal Reserve's balance sheet by purchasing an additional $750 billion in government-funded corporate mortgage securities; bringing the total purchase of these securities to $1.25 trillion this year and increasing the amount of agency debt 14 purchases this year by $100 billion for a total of $200 billion Ben Bernanke said that the Fed's balance sheet expansion means the Fed is creating cryptocurrency, which is necessary "because our economy is very weak and inflation is very low When the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation" 3.2 The Government of the United States of America In February 2008, George W Bush - President of the United States signed the Economic Stimulus Act of 2008, from which the government implemented a stimulus program with a total value of $ 168 billion, mostly in the form of a personal income tax refund Faced with a severe financial crisis, Congress approved a $700 billion fiscal package presented by the Bush administration Initially, the US House of Representatives was rejected by most of the US Democrats, saying that it was impossible to waste money to save too many troubled financial institutions But after the plan to use $ 700 billion was adjusted to spend on programs that serve many people to stimulate consumption (such as assistance for the unemployed, nutritional support for the poor and the elderly, low income, infrastructure development), thereby revitalizing the economy, it was approved by the Senate On October 3, 2008, President Bush signed the Emergency Economic Stabilization Act (EESA) of 2008 authorizing this $700 billion stimulus package EESA subsequently authorized the secretary of the treasury to establish a Troubled Asset Relief Program (TARP) to protect the creditworthiness of consumers and businesses 3.3 Barack Obama's Plan In 2007-2008, there was a crisis, Barack Obama is a candidate for President of the United States, he officially took office on January 20, 2008, is the 44th president of the United States, after being elected as mentioned above an economic stimulus program in which the United States will stimulate demand with: Infrastructure development projects not seen since the 1950s; Upgrading the energy use system of US government agencies' offices towards energy saving; Large investment in technology development, especially electronic health information, computer systems for high schools and broadband Internet development; Grant more funding to the Health Insurance Program An additional $50 billion in addition to the $20 billion agreed to the auto industry is provided on the condition, that the industrial undergoes substantial reform He also signed the American Recovery and Reinvestment Act (ARRA), also called the Stimulus implemented with the new Vice President, implemented a stimulus package worth $787 billion It has the role of urgent to create jobs for Americans; emergency help for households in difficulty; direct and urgent help to homeowners instead of bailing out irresponsible mortgage15 ... objectives Analyze the period of economic crisis 2007-2009 in the US, find out the causes of the crisis The crisis had a severe impact on the United States and the world economy In the face of that... April 27) on United States reinvestment and reinvestment laws in 2009, when the U.S was suffering as a result of the financial crisis The unemployment rate in the US increased rapidly, the U.S Congress... consequences for the US economy, affecting not only at that time but also in the sequent years One of the causes of the financial crisis in the United States from 2007 to 2009 was an investment in the U.S