Economics

There is an increasing situation of history repeat itself when observing the reactions of most Americans on the current economic crisis. It is comparable to what happened in the 1930s and the wake of 1940s in the fact that most Americans are now turning to several risky investments. Banks gave out loans to investors who bought the stocks and when the market of stocks plummeted, there was no one who could sell their stocks leading to the massive crash of banks. The result was a total loss witnessed by the stock speculators as well as the customers. Several events led to the Great Depression but the most contributing reason was the many customers who bought stocks through bank borrowings and accumulated the stocks with hopes for the stock prices to go up and make huge profits (Allan, 2009). This was not the case, the stock prices declined lower than they expected. They never imagined that the stock prices had two trends the increase and decrease in stock prices.

In the current macroeconomic situation, it may appear that banks are also failing although this failure is not caused by the same reason during the Great Depression. There are few banks sinking in the past few years and banks have no means to make available the loans to investors. The problem seems to lie in the capital in the depository institutions which is being impaired. When capital is impaired, it diminishes the ability to provide more loans. 

However, the current macroeconomic situation in the US seems to be promising one as it has been saved from getting into another deep recession. It is however recommended that the Federal Reserve and the US Congress to continue with their current policy of monetary funding which have been given the mandate and suggested to be the strategies of liquidity maintenance in the system (Discuss Economics.com, 2010). The existing policies have strategies of making available of more funds to most corporations and to the system as well as in the direction of stimulating demand. 

The continued strategies that are aimed at stimulating both demand and production will ensure that the US macroeconomic situation does not end up into another serious recession or slowdown. The efforts of the Fed Reserve and the US Congress will see the restoration of the economy back on track. The Federal Reserve System is the sole authority in the US that is responsible for two monetary policies the expansionary policy and the contractionary policy. The expansionary policy is also known as the easy money which results if Fed raises the money supply and decreases the interest rates. This tool is the most recommended strategy in the countering of recession (Discuss Economics.com, 2010). The monetary tools are aimed at improving the economic growth, stability and provision of full employment.

Another tool that has been used to counter recession in the United States is the fiscal policy which seeks to limit the business cycle fluctuations and reduce the level of unemployment as well as inflation. This also promotes economical growth. The fiscal policy utilizes the spending authority of the federal government and the taxation in order to stabilize the business cycle.

Although some of the policy makers have preferred the fiscal policy over the monetary policy or monetary policy over fiscal policy, both of these policies have been adopted in restoring the economies and prevent serious recession. The tools have been suggested by the Free Open Market Committee (FOMC) which is a component of the Federal Reserve System which s charged with the responsibly of overseeing the operations of open market.