Recession Grips America
President, Congress work out deal for relief
Jimmy Sengenberger, News Editor
Issue date: 2/9/09 Section: News
The United States Senate reached a tentative deal Friday on an economic recovery package, valued at more than $800 billion, just a day after President Barack Obama warned of economic "catastrophe" last Thursday night if a massive stimulus package does not receive swift passage.
"A failure to act, and act now, will turn crisis into a catastrophe and guarantee a longer recession, a less robust recovery and a more uncertain future," Obama said on February 4.
With the United States deep in a recession that began in December of 2007, the Obama administration has worked vigorously to implement a massive package intended to soften the blow and stimulate a quick turnaround in the economy.
The unemployment rate for January was 7.6%, and economists expect that number will increase as businesses like Circuit City close their doors or layoff workers.
Typically, the government uses monetary policy tools of interest rate cuts to spur an increase in loan distributions to help stimulate the economy. However, due to an absence of credit in the financial markets, which are made up primarily of banks, those markets have been severely weakened.
"The financial sector is so fundamental to every other sector because [it] controls credit, and the availability of credit affects people's access to money for investment purposes, and investment is what we need for growth," said Dr. Robin Koenigsberg, assistant professor of economics. "When credit dries up it's problematic because companies can no longer grow."
The Federal Reserve, which is responsible for interest rate cuts, has already taken the unprecedented step of setting key interest rates below 1%. These monetary tools have thus far been ineffective and have not succeeded in getting credit flowing again, thereby forcing the government to turn to fiscal policy measures of tax and spend to influence the economy.
The House and Senate have each agreed on their own version of the bill, sharing two fundamental goals: more than $300 billion in tax cuts, in the form of tax rebates, and roughly $500 billion in infrastructure spending.
"A failure to act, and act now, will turn crisis into a catastrophe and guarantee a longer recession, a less robust recovery and a more uncertain future," Obama said on February 4.
With the United States deep in a recession that began in December of 2007, the Obama administration has worked vigorously to implement a massive package intended to soften the blow and stimulate a quick turnaround in the economy.
The unemployment rate for January was 7.6%, and economists expect that number will increase as businesses like Circuit City close their doors or layoff workers.
Typically, the government uses monetary policy tools of interest rate cuts to spur an increase in loan distributions to help stimulate the economy. However, due to an absence of credit in the financial markets, which are made up primarily of banks, those markets have been severely weakened.
"The financial sector is so fundamental to every other sector because [it] controls credit, and the availability of credit affects people's access to money for investment purposes, and investment is what we need for growth," said Dr. Robin Koenigsberg, assistant professor of economics. "When credit dries up it's problematic because companies can no longer grow."
The Federal Reserve, which is responsible for interest rate cuts, has already taken the unprecedented step of setting key interest rates below 1%. These monetary tools have thus far been ineffective and have not succeeded in getting credit flowing again, thereby forcing the government to turn to fiscal policy measures of tax and spend to influence the economy.
The House and Senate have each agreed on their own version of the bill, sharing two fundamental goals: more than $300 billion in tax cuts, in the form of tax rebates, and roughly $500 billion in infrastructure spending.
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