Zero Interest Rate Policy (ZIRP), Quantitative Easing (QE), and Operation Twist all provided massive economic stimulus during and after the Great Recession of 2008. This recession cut the United States economy deeper than other economic crisis since World War II. The recovery of our very fragile economy remains at a very slow pace and is still incomplete. This crisis forced numerous central banks to pursue unconventional monetary policies in an attempt to fix our broken economy. Throughout this paper, I will discuss each program as an economic solution to the Great Recession to deter an economic spiral into another Great Depression. Each of these programs have their own economic benefits, as well as some unintended consequences. Over all, these three programs have shown to greatly enhance the productivity of the United States economy. The interesting part of these solutions are that no one solution can exist without some unwanted consequences. Similar to how life’s problems treat us every day where, we manage to fix one of our problems and shortly right after become aware of three or four more problems. The economy is very complicated due to its instability, and continuing force to always change and fluctuate. With this being said, we know the reasons why we landed into the Great recession of 2008, and we devised many plans to force our way out into a working economy. The problem lies in creating a solution that doesn’t create more problems. The basis of this paper is trying to get down to these solutions and there capabilities to help our economy in such desperate times. The first program that I will be discussing is the Zero Interest Rate Policy which is also known as ZIRP.
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The Zero Interest Rate Policy is defined as “A route taken by a central bank to keep the base rate at zero percent in an attempt to stimulate demand in the economy by making the supply of money cheaper.” Basically ZIRPs objective was to grow the economy while keeping interest rates as close to zero as possible. The United States is one of many nations that have turned to this very unconventional way of stimulating economic growth after the Great Recession. This program was introduced to the United States in 2008 after the financial crisis caused the Federal Reserve to take action in an attempt fix our broken economy. This program is known to be associated with very slow economic growth. The United States economy reached an all-time low in 2009 after the financial crisis caused inflation to drop to -2.1 percent, Gross Domestic Product to fall to -2.8 percent, and the unemployment rate to rise to a heart breaking 10.2 percent. After almost five years of the Zero Interest Rate Policy, as well as a number of other programs, inflation rose to 1.8 percent, Gross Domestic Product rose to 3.2 percent, and the unemployment rate dropped to 6.6 percent. The initial idea of Zero Interest Rate Policy was to encourage riskier investments such as stocks, real estate, and bonds by lowering interest rates, which in turn stimulate consumption and increase economic growth. All of that sounds great, and in a perfect world ZIRP would have pulled us right out of the recession and back on our feet, but with every action there is an equal and opposite reaction. ZIRP definitely had a hand in repairing the economy, but that does not mean that there were no unforeseen consequences to this policy. In an Essay titled “What Is Seen and What …show more content…
Every time a loan is given or credit is being used, money is created. Not the actual physical money that we can touch and feel but rather the idea of it for now we are instantly in debt. The creation of money actually lowers the value of each dollar and takes away its purchasing power. In the long run, the Zero Interest Rate Policy by itself has the potential to cause mass chaos within ones economy. The initial effects of Zero Interest Rate Policy used alongside other economy stimulating programs have helped to deter the United States economy from spiraling into another Great Depression. The initial effects of Zero Interest Rate Policy alone did not fix our broken economy and that leads me into the next topic, Quantitative
The Zero Interest Rate Policy is defined as “A route taken by a central bank to keep the base rate at zero percent in an attempt to stimulate demand in the economy by making the supply of money cheaper.” Basically ZIRPs objective was to grow the economy while keeping interest rates as close to zero as possible. The United States is one of many nations that have turned to this very unconventional way of stimulating economic growth after the Great Recession. This program was introduced to the United States in 2008 after the financial crisis caused the Federal Reserve to take action in an attempt fix our broken economy. This program is known to be associated with very slow economic growth. The United States economy reached an all-time low in 2009 after the financial crisis caused inflation to drop to -2.1 percent, Gross Domestic Product to fall to -2.8 percent, and the unemployment rate to rise to a heart breaking 10.2 percent. After almost five years of the Zero Interest Rate Policy, as well as a number of other programs, inflation rose to 1.8 percent, Gross Domestic Product rose to 3.2 percent, and the unemployment rate dropped to 6.6 percent. The initial idea of Zero Interest Rate Policy was to encourage riskier investments such as stocks, real estate, and bonds by lowering interest rates, which in turn stimulate consumption and increase economic growth. All of that sounds great, and in a perfect world ZIRP would have pulled us right out of the recession and back on our feet, but with every action there is an equal and opposite reaction. ZIRP definitely had a hand in repairing the economy, but that does not mean that there were no unforeseen consequences to this policy. In an Essay titled “What Is Seen and What …show more content…
Every time a loan is given or credit is being used, money is created. Not the actual physical money that we can touch and feel but rather the idea of it for now we are instantly in debt. The creation of money actually lowers the value of each dollar and takes away its purchasing power. In the long run, the Zero Interest Rate Policy by itself has the potential to cause mass chaos within ones economy. The initial effects of Zero Interest Rate Policy used alongside other economy stimulating programs have helped to deter the United States economy from spiraling into another Great Depression. The initial effects of Zero Interest Rate Policy alone did not fix our broken economy and that leads me into the next topic, Quantitative