The Great Recession and the Federal Reserve

From the historical perspective, the collapse of the USD spurred the Great Recession as the Federal Reserve and stock markets faltered against global pressures. The worst happened. A housing crisis and a clumsy attempt to recover intensified the damage when the markets failed. Bank bailouts through Quantitative Easing programs helped the Federal Reserve slow down the wreckage even as global pressures mounted. The "Fed" system, represented by the 12 Reserve Banks looked for more solutions to remedy the economic crisis and stabilize the reserved currency. 

 As things worsened, homeowners could only buckle under the forces and default on mortgages causing an accumulation of more bad debt for the Federal Reserve of the United States to deal with. But, the economy stalled a recovery around 2013 only to come to a full recovery five years later.

 The "Fed" 

According to historians the fate of the USD faltered just as the Lehman Brothers claimed bankruptcy in 2007; the event revealed that there were difficulties which could not be resolved without taking action to file for bankruptcy. The problems erupted. Subprime mortgages took center stage as the major cause of the filing and the conclusive reason for the housing crisis. Because many businesses participated in mortgage-backed securities at the turn of the millennium, the housing crisis had reached several other areas of the financial sector. 

Normal day-to-day business procedures settled balances due with mortgage-backed securities. Businesses such as title and loan companies, car dealerships, etc, followed practices that bent the rules of security exchanges at the cost of the integrity of the USD. Good-faith and the character of business in the U.S. had been compromised. Finally, the mortgage-backed securities that ensured business transactions since the millennium turned into a system of defaults in the housing market.

Not to mention the defaults, interest rates also played a major part in the defunt currency system. As the Federal Reserve looked to guide banks out of the most costly situations, the Libor interest rate continued to rise. Something had to be done. Banks refused to lend to each other as the interest rate climbed to unbelievable highs; this caused a freeze in the the use of the Libor rate. When banks refuted the soundness of the Libor rate by rejecting the use of inter-bank loans, the message that the USD had fallen as the top reserved currency was sent. If banks could not participate in inter-bank loan programs, the "Fed" would be the lender of last resort for banks falling to economic pressures. This was the only way out. 

Furthermore, the bad debt building from the housing crisis presented just one of the causes of the inflation of the USD. The Euro had finally made a move to topple the overly inflated greenback. What surfaced was a decrease in nominal GDP which held the USD under the Euro. A predictable defeat neared the faulty currency system. To tackle the inflated USD, the Federal Reserve would have to lower interest rates or increase the money supply. However, increasing the money supply appeared impossible; the 12 Reserve Banks would have to proceed with caution in favor of lowering interest rates.

The Stock Market Crash of 2008

 Here, the The Stock Market Crash of 2008 sealed the fate of the USD. The Balance reported, "Companies doing business with these banks were negatively affected, and this pummeled their stocks. . . the banking crisis led to a failure of confidence in the U.S. stock market." Businesses could only cut the losses. Monetary policy failed to answer the difficulties faced by banks and now the crash of the markets. Every industry suffered as the crash deteriorated faith in the USD, and small businesses and corporation closed their doors. Factories, restaurants, and shops alike reacted to the crumbling integrity of business in the U.S.

It all happened in a flash when the Dow Jones stock market suffered major one-day point losses and did not correct its losses until 2018. Attempts were made to recover; but, the first success for Dow Jones occurred in 2013, yet could not completely pull the market out of its slump. The true recovery occurred in 2018. Still, the London FTSE also witnessed a 5.3% drop as the crash changed the course of the USD. Then, the other markets followed. 

An interdiscipline approach will be favored by scholars in explaining the causes and aftermath of the Great Recession, but the historical perspective only will thoroughly explain the failure of the USD. Using the historical perspective academics will continue to debate the most significant events of the Recession and the names and faces of the individuals who pulled through for the nation.

The consensus will be that the bank bailouts happened to assuage the effects of pre-existing conditions, not only subprime mortgages. Miscues from the markets also contributed to the defunct. Recollecting the Fed's actions will bring to light the importance of the USD in the first decade. The USD held the reputation as the top reserved currency in the first decade, but definitely faded away as the dawn of a new decade began. 

Questions 

Who are the most important leaders in the Fed who worked to correct the economic crisis? Will there be another financial crisis that lasts longer than the Recession?

keywords: reserved currency; interest rate; stock market

SOURCES:

- Barry Eichengreen. Hall of Mirrors: The Great Depression, the Great Recession, and the Uses-and Misuses-of History. 1 ed Oxford Univer Press NY, 2015.
-Timothy F. Geithner. Stress Test: Reflections on Financial Crises. Random House NY, 2014.
-Scott Sumner. "The Fed and the Great Recession: How Better Monetary Policy Can Avert the Next Crisis"  Foreign Affairs Vol. 95, No. 3 (MAY/JUNE 2016), Council on Foreign Relations
-thebalancemoney.com/stock-market-crash-of-2008-3305535#toc-when-did-the-stock-market-crash-in-2008