Sample Essay

The initiatives taken by the U.S Treasury department and the Federal Reserve may have short term advantages for the financial markets and the economy but on a long run basis these actions would not help the economy to grow. According to the Congressional Budget Office by 2019 the stimulus package will reduce GDP by an estimated 0.1 to 0.3 percent on net. The benefits would be seen in 2009 and 2010 which is a very short period of time but in the long run it would affect the Government debt substantially resulting in a decrease of GDP (Christ).

The crisis was a result of bad regulations and subprime lending. The long run solution to this problem would be to make the regulatory framework more efficient in order to control the lending process. If the banks start lending money on low rated mortgage securities with high risks in anticipation of higher profits we could face a similar problem in the years to come. The current liquidity crunch would be diminished by these steps but in the future, steps have to be taken to avoid such an economic crisis.

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