The US Economic Crisis: Causes and Solutions
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The US economy is currently experiencing its worst crisis since the Great Depression. The crisis started in the home mortgage market, especially the so-called “subprime” mortgages, and is now spreading beyond subprime to prime mortgages, commercial real estate, corporate junk bonds, and other forms of debt. Total losses of US banks could reach as high as half of the total bank capital, which would lead to a sharp reduction in bank lending, which in turn could cause a severe recession in the US economy. The paper analyzes the underlying causes of the current crisis, and also estimates of how bad the crisis is likely to be. Then, the government economic policies pursued so far (by both the Fed and Congress) to deal with the crisis are discussed. The final section makes recommendations for more radical government policies that the Left should advocate and support in response to this crisis.
Abstract
The US economy is currently experiencing its worst crisis since the Great Depression. The crisis started in the home mortgage market, especially the so-called “subprime” mortgages, and is now spreading beyond subprime to prime mortgages, commercial real estate, corporate junk bonds, and other forms of debt. Total losses of US banks could reach as high as half of the total bank capital, which would lead to a sharp reduction in bank lending, which in turn could cause a severe recession in the US economy. The paper analyzes the underlying causes of the current crisis, and also estimates of how bad the crisis is likely to be. Then, the government economic policies pursued so far (by both the Fed and Congress) to deal with the crisis are discussed. The final section makes recommendations for more radical government policies that the Left should advocate and support in response to this crisis.