Atestat Limba Engleza Anul I

8/12/2019 Atestat Limba Engleza Anul I

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I Rationale

II The Great Depression of 1929-1933

1. Background and causes 1.2Federal Reserve and money supply 2. Effects of the depression 3. Recovery

4. False prophets

III The Great Recession (2007-present)1. Background and causes

1.1 Easy credit conditions1.2 Su!prime lending

2. Effects of the recession3. Recovery

3.1 Emergency and short!term resonses3.2 Regulatory proposals and long!termresponses

4. False prophets

IV Personal contribtion1. "omparison et#een $he %reat &epression of

1'2'!1'33 and $he %reat Recession(the currentone)

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I! Rationale

* have chosen to #rite aout this particularly su+ect ecause my future plans involveattending the "ollege of Economic Science. $he first time * studied economics in class itappealed to me and * found it useful as a result of its strong impact on society.

,oreover- the current financial crisis created radical changes #orld #ide increasing thedifference et#een the states more than the %reat &epression did in 1'2'. $his is theconseuence of the fact that all countries are part of an international trade net#ork #hich makesthem vulnerale to any sharp fluctuation in the currency of each state. %iven the fact that eachcountry needs to import goods in order to satisfy its citi/en0s demand- it is completely impossileto avoid the slight inflation #ithin its o#n economy.

*ntrigued y current events #hich take place no#adays in our country from great loansfrom $he *nternational ,onetary Fund- to ma+or decrease in #ages and pensions- * tried to makesome research on this su+ect in order to understand #hy this is happening- #hat is the elementthat triggered this recession. * have started to read ooks- ne#spapers- to #atch more and more$ sho#s that approach economic issues not only at a national level ut also gloally. ot only

did the notions of economy help me to etter understand the issues caused y this economiccrash ut also- gathering information for this paper has enaled me to get more familiar #ith the#ay the economic contet #ill influence our lives- as ma+or changes have already taken placeand drastically measures that #ill affect us all #ill not cease to e ut into action.

"oncerning this- * #ould also add that this generation is one of sacrifice- a generation on#hich life!or!death eperiments are eing run on ! of course- all of this- from an economical pointof vie#.s * mention the #ord 5generation5- my perspective easily slips upon the future ! #ill thehigh level decisions that are taken as #e speak improve my standard of life6 7r ho# aout mychildren0s life6 $hese uestions come naturally- as * #onder ho# can their decisions allo# me tosustain myself and my family- #ithout any useless and harmful constraints.

II The Great Depression of 1929-1933

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1! "ac#$ron% an% cases

s mass production has to e accompanied y mass consumption- mass consumption- in turn-implies a distriution of #ealth 8 not of eisting #ealth- ut of #ealth as it is currently produced8 to provide men #ith uying po#er eual to the amount of goods and services offered y thenation0s economic machinery.

*nstead of achieving that kind of distriution- a giant suction pump had y 1'2'!39 dra#n into afe# hands an increasing portion of currently produced #ealth. $his served them as capitalaccumulations. But y taking purchasing po#er out of the hands of mass consumers- the saversdenied to themselves the kind of effective demand for their products that #ould +ustify areinvestment of their capital accumulations in ne# plants. *n conseuence- as in a poker game#here the chips #ere concentrated in fe#er and fe#er hands- the other fello#s could stay in thegame only y orro#ing. :hen their credit ran out- the game stopped.

&et is seen as one of the causes of the %reat &epression-particularly in the ;nited States. ,acroeconomists including BenBernanke- the current chairman of the ;.S. Federal Reserve Bank-

have revived the det!deflation vie# of the %reat &epressionoriginated y rthur "ecil 9? ut the dets remained at the same dollar amount. fter thepanic of 1'2'- and during the first 19 months of 1'39- 44 ;S anks failed. (*n all- '-999 anksfailed during the 1'39s). By 1'33- depositors had lost C149 illion in deposits.

Bank failuressno#alled asdesperate ankerscalled in loans #hichthe orro#ers did nothave time or money torepay. :ith futureprofits looking poor-capital investment andconstruction slo#ed orcompletely ceased. *nthe face of ad loans

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and #orsening future prospects- the surviving anks ecame even more conservative in theirlending. Banks uilt up their capital reserves and made fe#er loans- #hich intensified deflationarypressures. vicious cycle developed and the do#n#ard spiral accelerated. $his kind of self!aggravating process may have turned a 1'39 recession into a 1'33 great depression.

1!2! &e%eral Reser'e an% one sppl

,onetarists- including ,ilton Friedman and current Federal Reserve System chairman BenBernanke- argue that the %reat &epression #as caused y monetary contraction- theconseuence of poor policymaking y the merican Federal Reserve System and continuouscrisis in the anking system. *n this vie#- the Federal Reserve- y not acting- allo#ed the moneysupply as measured y the ,2 to shrink y one!third from 1'2' to 1'33. Friedman argued thatthe do#n#ard turn in the economy- starting #ith the stock market crash- #ould have een +ustanother recession. $he prolem #as that some large- pulic ank failures- particularly that of theBank of the ;nited States- produced panic and #idespread runs on local anks- and that the

Federal Reserve sat idly y #hile anks fell. De claimed that- if the Fed had provided emergencylending to these key anks- or simply ought government onds on the open market to provideliuidity and increase the uantity of money after the key anks fell- all the rest of the anks#ould not have fallen after the large ones did- and the money supply #ould not have fallen as farand as fast as it did. :ith significantly less money to go around- usinessmen could not get ne#loans and could not even get their old loans rene#ed- forcing many to stop investing. $hisinterpretation lames the Federal Reserve for inaction- especially the e# ork ranch.

7ne reason #hy the Federal Reserve did not act to limit the decline of the money supply #asregulation. t that time the amount of credit the Federal Reserve could issue #as limited y la#s#hich reuired partial gold acking of that credit. By the late 1'29s the Federal Reserve hadalmost hit the limit of allo#ale credit that could e acked y the gold in its possession. $hiscredit #as in the form of Federal Reserve demand notes. Since a promise of goldG is not as good

as gold in the handG- during the ank panics a portion of those demand notes #ere redeemed forFederal Reserve gold. Since the Federal Reserve had hit its limit on allo#ale credit- anyreduction in gold in its vaults had to e accompanied y a greater reduction in credit. Severalyears into the %reat &epression- the private o#nership of gold #as declared illegal- reducing thepressure on Federal Reserve gold.

*n a depression ! assets and det oth have to drop. &et is #ritten off as uncollectile (unlessyou are a hedge fund representing the privileged class in #hich case the ;S $apayer keeps you#hole) and assets are marked do#n.

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$his is not a recession. $he central ank did not raise interest rates to cause this. *n fact eforethis even egan long term rates dropped elo# short term rates. sset prices are dropping fast.*ndicators like the doule '=1 up days have no validity in periods like this.

The Great Depression happene% in 1929! It too# o'er 10 ears to cre!

2! *ffects of the %epression+13 million people ecame unemployed.*ndustrial production fell y nearly 4>? et#een the years 1'2' and 1'32.

%ross &omestic


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confidence had an impact on gloal stock markets-#here securities suffered large losses duringlate 299H and early 299'. Economies #orld#ide slo#ed during this period as credit tightened andinternational trade declined. "ritics argued that credit rating agenciesand investors failed toaccurately price the riskinvolved #ith mortgage!related financial products- and that governmentsdid not ad+ust their regulatory practices to address 21st century financial markets. %overnmentsandcentral anksresponded #ith unprecedented fiscal stimulus- monetary policyepansion- andinstitutional ailouts.

1!1! *as cre%it con%itions

Ko#er interest rates encourage orro#ing. From 2999 to 2993- the Federal Reserve lo#ered thefederal funds ratetarget from I.>? to 1.9?. $his #as done to soften the effects of the collapse ofthe dot!com uleand of the Septemer 2991 terrorist attacks-and to comat the perceived riskof deflation.

;.S. current account or trade deficit

dditional do#n#ard pressure on interest rates #as created y the ;SMs high and rising current

account (trade) deficit- #hich peaked along #ith the housing ule in 299I. Ben Bernankeeplained ho# trade deficits reuired the ;.S. to orro# money from aroad- #hich id up ondprices and lo#ered interest rates.

Bernanke eplained that et#een 1''I and 2994- the ;S current account deficit increased yCI>9 illion- from 1.>? to >.H? of %&


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R, interest rate resets more epensive for homeo#ners. $his may have also contriuted to thedeflating of the housing ule- as asset prices generally move inversely to interest rates and itecame riskier to speculate in housing. ;S housing and financial assets dramatically declined invalue after the housing ule urst.

1!2! b-prie len%in$

;.S. suprime lending epanded dramatically 2994!299I

$he term su!prime refers to the credit uality of particular orro#ers- #ho have #eakened credithistories and a greater risk of loan default than prime orro#ers. $he value of ;.S. su!primemortgages #as estimated at C1.3 trillion as of ,arch 299- #ith over .> million first! lien su!prime mortgages outstanding.

*n addition to easy credit conditions- there is evidence that oth government and competitivepressures contriuted to an increase in the amount of su!prime lending during the years

preceding the crisis. ,a+or ;.S. investment anks and government sponsored enterprises likeFannie ,aeplayed an important role in the epansion of higher!risk lending.

Su!prime mortgages remained elo# 19? of all mortgage originations until 2994- #hen theyspiked to nearly 29? and remained there through the 299>!299I peak of the ;nited Stateshousing ule. proimate event to this increase #as the pril 2994 decision y the ;.S.Securities and Echange "ommission (SE") to rela the net capital rule- #hich permitted thelargest five investment anks to dramatically increase their financial leverage and aggressivelyepand their issuance of mortgage!acked securities. $his applied additional competitivepressure to Fannie ,aeand Freddie ,ac- #hich further epanded their riskier lending. Su!primemortgage payment delinuency rates remained in the 19!1>? range from 1''H to 299I- thenegan to increase rapidly- rising to 2>? y early 299H.

Some- likemerican Enterprise *nstitute fello#


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the government!susidi/ed corporation may run into troule in an economic do#nturn- promptinga government rescue similar to that of the savings and loan industry in the 1'H9s.

2999 ;nited States &epartment of the $reasury study of lending trends for 39> cities from 1''3to 1''H sho#ed that C4I illion of mortgage credit poured out of "R!covered lenders into lo#and mid level income orro#ers and neighorhoods. evertheless- only 2>? of all su!prime

lending occurred at "R!covered institutions- and a full >9? of su!prime loans originated atinstitutions eempt from "R.

7thers have pointed out that there #ere not enough of these loans made to cause a crisis of thismagnitude. *n an article in


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From 299 almost 23H anks failed.

3! Reco'er

3!1 *er$enc an% short-ter responses

$he ;.S. Federal Reserveand central anks around the #orld have taken steps to epandmoney supplies to avoid the risk of a deflationary spiral- in #hich lo#er #ages and higherunemployment lead to a self!reinforcing decline in gloal consumption. *n addition- governmentshave enacted large fiscal stimulus packages- y orro#ing and spending to offset the reduction inprivate sector demand caused y the crisis. $he ;.S. eecuted t#o stimulus packages- totaling

nearly C1 trillion during 299H and 299'.

$his credit free/e rought the gloal financial system to the rink of collapse. $he response of the;.S. Federal Reserve- theEuropean "entral Bank- and other central anks #as immediate anddramatic. &uring the last uarter of 299H- these central anks purchased ;SC2.> trillion ofgovernment det and trouled private assets from anks. $his #as the largest liuidity in+ectioninto the credit market- and the largest monetary policy action- in #orld history. $he governmentsof European nations and the ;S also raised the capital of their national anking systems yC1.> trillion- y purchasing ne#ly issued preferred stockin their ma+or anks.

%overnments have also ailed outa variety of firms as discussed aove- incurring large financial

oligations. $o date- various ;.S. government agencies have committed or spent trillions ofdollars in loans- asset purchases- guarantees- and direct spending. For a summary of ;.S.government financial commitments and investments related to the crisis- see " ! BailoutScorecard.

3!2 Re$lator proposals an% lon$-ter responses

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http://en.wikipedia.org/wiki/Federal_Reservehttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Federal_Reservehttp://en.wikipedia.org/wiki/European_Central_Bankhttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Bailouthttp://en.wikipedia.org/wiki/Bailouthttp://money.cnn.com/news/specials/storysupplement/bailout_scorecard/index.htmlhttp://money.cnn.com/news/specials/storysupplement/bailout_scorecard/index.htmlhttp://en.wikipedia.org/wiki/Federal_Reservehttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Federal_Reservehttp://en.wikipedia.org/wiki/European_Central_Bankhttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Bailouthttp://money.cnn.com/news/specials/storysupplement/bailout_scorecard/index.htmlhttp://money.cnn.com/news/specials/storysupplement/bailout_scorecard/index.html


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Further information= Regulatory responses to the su!prime crisisand Su!prime mortgage crisissolutions deate

;nited States


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5:e may see a lip up in foreclosures and delinuencies.5! Keslie ppleton! oung- "hiefEconomist "alifornia ssociation of Realtors &ec. 1>- 299>

5:e0re no# in the Mmiddle inningsM of the current economic epansion- and the net economicrecession is not yet in sight.5! &avid Seiders- "hief Economist ational ssociation of DomeBuilders Jan. 299I

5* think investors #ill have a good reason to come out here and uy again.5! Jeromith Sutton R*nvestment disor 299I

5$here is no ule to urst5! Jim Folkman- ice

5*0d say this is another very important signal that the economic soft patch #e #ere all #orriedaout is pretty much confined to ,arch5! &avid Seiders- "hief Economist ational ssociation ofDome Builders ,ay 1- 299>

5*0m calling it a soft landing5! Keslie ppleton! oung- "hief Economist "alifornia ssociation ofRealtors &ec.I- 299>

...5*0m sorry * have ever made that comment.5! Keslie ppleton! oung- "hief Economist"alifornia ssociation of Realtors July 21- 299I

5Dousing is still the est investment- #ithout uestion.5! Stan Sieron-


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plan is intended to help this situation and create millions of +os. $his alone should decrease theunemployment rate in the upcoming months.

Banks are in a much greater standing than they #ere ack in the 1'39Ms. $housands of anksshut do#n during the %reat &epression #hereas only a handful has shut their doors this year.&epositorMs assets have much more protection these days as #ell. $he F&*" has increased the

amount of insurance it places on each depositor at each institution from C199-999 to C2>9-999.lthough this is a temporary change- it #ill cause people to have more confidence in their anksecause if for some reason anks collapse- their money is still safe. $he government in this era#ill step in and offer help to anks on the verge of failing. *n 7ctoer- "ongress approved C99illion to ail out the nationMs anks. &uring the %reat &epression- if your ank collapsed yoursavings #ere completely gone. $his has tremendously changed for the etter.

299H #as one of the #orst years for stocks as the S< >99 fell more than 49?. Stocks are do#nand it is a very high risk for some to e investing money they #ill soon need to survive. $heFederal Reserve has cut interest rates and not too long ago moved the federal funds rate to thelo#est in history! et#een 9 and 2>?.

&uring the %reat &epression- government officials #ere not as proactive as they are in todayMs

#orld.

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Atestat Limba Engleza Anul I