Research On American Government Economy Stimulus Plans During The Financial Crisis

This thesis is focuses on proving the U.S. financial system is fundamentally flawed. Artificially low interest rates and8failed American "stimulus" plans adding more than＄6trillion to the U.S. national debt in just four years; is more than enough evidence that the currently followed Keynesian economic theory in times of economic crises, involving the government via increased government spending can not solve modern debt crises. The question of how can America pay its debt cannot be answered truthfully because the money borrowed to finance unproductive consumption in the United States has been spent on monetary stimulus. It is not sitting in a bank or invested someplace else.This thesis also describes the financial crisis itself, and analyzes its cause and fundamental background. As Alan Greenspan admitted his faults at the Congressional Hearings of2008, banks made risky loans and used a high degree of leverage and the government lacked control financial activities. This would be the most common understanding of the reason why the crisis of2007occurred. But it is important to analyze not only the origins and causes of the crisis, but economic and monetary policy in general and more specifically, who influences it and why it is important. Only by having a clear understanding of the aforementioned sentence can we ever hope to have a clear idea of what is happening now and possibly have some clues of what is to come in the future and be able to prepare for it.This thesis explains several philosophies to solve the financial crisis from different groups of people. There are two main groups of influential people that have garnered much global attention during this dire time of financial crisis. One group of people, proponents of Keynesian economics are more or less disciples of John Maynard Keynes who believed times of crisis required more government involvement in the economy. Others such as Milton Friedman are proponents of classical economics that often propose austerity in times of crisis. A third yet, less heard group of people are the ones that propose change in the system whether that mean more or less government interference, more or less regulations, and of course suggestions of new ways that instigate change in our global economic system.For the Chinese government, the government spending obviously worked. After the4trillion yuan stimulus package was announced by the Chinese government in2008to minimize the impact of the global financial crisis, GDP growth rate expanded by6.74%from2.36%in2009. China reduced fluctuations in the economy and brought the economic growth close to baseline level in the near post-crisis period.The Japanese government followed the advice of western economic planners including Nobel laureate Paul Krugman and current Federal Reserve Chairman Ben Bernanke. For more than20years the Japanese government has continued to borrow and spend on infrastructure and other wasteful government programs while keeping interest rates artificially low. The result:two lost decades and ever increasing debt to GDP ratio which now stands at nearly250%. Japanese people had a savings rate of15%a year in1990, today it is less than1%. America is no different than Japan with the exception of the U.S. dollar being the world’s reserve currency that currently allows it not only the ability to print money to pay its bills, but also, to borrow from its taxpayers and all the countries in the world.The U.S. government has chosen to follow the model of John Maynard Keynes and engage in massive stimulus spending in the hope that the United States can "spend" its way to prosperity. Stimulus in times of crisis is always easier than austerity. This thesis covers the political reasons of why it does.This thesis also analyzes the potential American national debt crisis and its relationship with the financial crisis. The U.S. economy in its current state could not exist without the support of the rest of the world subsidizing U.S. dollars by its increased purchases of U.S. debt. By locking away foreign owned U.S. debt recorded in a Federal Reserve computer, not only does the debt need not be printed but it also need not enter the market place to purchase real goods and services thereby preserving the U.S. dollar purchasing power. As of January2013foreign governments held＄5616.5billion worth of U.S. treasuries up from＄5056.8billion in January2012(+11%) It is crucial to remember that pent up dollar supply and the price distortions caused by it will not last forever.In this thesis’s main content, the author enumerates the effects of the eight stimulus plans including national debt, private companies, and higher education. Also, the author gives suggested solutions for an improved American economy including lowering corporate tax rates, curtailing public benefits, limiting government involvement in free-market activities and eliminating financially destructive corporate welfare.The aim of this paper is for reader to understand why a future crisis is inevitable in the United States and what its causes were. There are no easy solutions to the current and pending financial crisis. Many academics, scholars, media commentators and the like have commented and written about specific aspects of the financial crisis at different points in time. I have never before seen a truly comprehensive thesis describing not only the origins of the crisis, but the effects of it, actions taken to avert it, and the impending benefits and consequences we can all expect in the future. I believe this thesis is unique in that it describes in full detail every step of the financial crisis.