The Monetary Policy

Monetary Policy is the best available tool for the countries to averse the effect of any thing worse happen like financial crisis. Mr. Ben Bernanke, who is the President of the United States Federal Reserves, also announced a monetary policy to stabilize the biggest economy of the world. In order to write about the applicability of monetary policy in US, we must have a very good idea regarding the imposition of such policy. Obviously the current financial constrain is the one, which urged a number of countries to announce a tight monetary policy on the economy, same was applied by US in order to mitigate the adverse effect of the crisis. Let's first take a look over the situation of US after envisaged a blood sucking economic downturn, and then we will look what majors did the US implement or intend to implement. As we are well aware with the fact that current financial crisis tsunami grabs every economy in its fatal claws. To reduce the adverse effect of the current economic slum down almost every country takes such initiatives which will help to take their economies back on track. United States of America is among those countries which hurt badly with the crises and still in severe distress. The current financial turmoil began in July, 2007 when the US real estate and mortgage market tumbled badly which also shook the confidence of the investors and became the ultimate cause of the financial crisis. The real estate or mortgage crisis hit as badly as it pushed the two biggest mortgaging firms Fenny Mae and Fredrick Mac to be default. Because of the default of the two giant mortgaging companies, the moral and confidence of the investors divert adversely and the people were reluctant to invest in the real state sector, then the cash shortage occurred in the market in the year 2007, which pushed more industries towards the brink of the bankruptcy. The Current financial downturn didn't forgive any industry and the industry which effected badly is the financial institutions. United States of America and The United Kingdom are the two countries, wherein the financial sector was very strong and one of the main sources of revenue, but presently this sector plunged in deep recession. In September, 2008, the financial institutions of USA suffered a severe loss first time after 2 to 3 decades. One can easily get an idea about how severely it effects the financial institution from this thing that the current global financial crisis suppressed the biggest giant banks namely Morgan Stanley and JP Morgan Chase to be bankrupt, which made the financial sector difficult to sustain or made it stifle. The rest worst done by the American International Group (AIG), which went bankrupt, when it asked to repay the collateral money. As per an estimation a number of banks pledged above $50 billion with the Group. The situation of the US went vulnerable, as the continuously deteriorating economic situation and mounting number of defaults constrained a large number of people to be unemployed. As per a number of finance officials, credit facility is one of the main victims of the current liquidity crunch in the US. Albeit, almost every business personal as well as individual households borrowed money from banks frequently and the banks didn't seemed to be reluctant to lend money before the arrival of the credit crunch, but literally the banks paid a high penalty on their mistake as hundred of thousands of peoples unable to repay the loan at time, which induced the economy to condense more rapidly. To overcome this worst crisis which referred as the second worst after the 1930 great depression, US need such strategies which stagnate their economy gradually. Many countries implemented different strategies in order to get their economy back on track like Australia, which pledge the bank deposit of the individuals for three years. This action by Kevin Rudd (Prime Minister of Australia) definitely enhances the consumer confidence, which is in a vulnerable position in USA. As a result of the current financial crisis a catastrophic figure of unemployed people lived below the poverty line in US, believe or not the people and the industries of USA wanted such strategy or monetary policy which again viable their economy. Mr. Ben Bernanke came with a positive frame of mind and announced to implement the monetary policy on the economy to extract out from this severe recession. Due to the bankruptcy of the giant financial institutions and continuously deepening economy intervene between the consumer and lending money from banks. Mr. Ben Bernanke announced to cut down the interest rate to almost zero percent to attract investors in the premises of the banks, as hundred of thousands of people are still don't have propensity to consume. Let me tell you, one interesting thing that, “Wars are good for Economy” Strange! Isn't it? You probably think that I am going crazy, but this is literally true, See before the Second World War the people of US hoarded their money and was not in a mood to consume it which pushed their economy into a depression at that time, but when the war began, there was a deficit of defense budget at that time the people start to consume their hoard money, which stabilized the economy again. But! Can we repeat the past again? I think we should, that's what Mr. Bernanke and Obama Administration consensus and cut down the interest rate to attract the investors. In the monetary policy speech Ben Bernanke also enhanced the corporation tax to 50 percent and announced a stimulus package of $787 billion, which will be injecting in the economy and in different industries especially into the financial sector to get them out from current discretionary situation. FED speech was mainly emphasized on the health of the financial sector which is in severe distress right now. US officials and analyst estimated that more than 8 banks were going default from February till now because of the shortage of liquidity. We as a common peoples are optimistic enough that the current action to stable the economy would evident to be sufficient enough, although it's not easy but nothing is impossible and we are hopeful that we will vanquish on these imbroglios soon.

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