American Crisis
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INTRODUCTION
After the few last years, which are link with the financial and economic crisis, the United States of America know an improvement of the economic growth. Indeed, after the introduction of Barack Obamas plans to revive the economic and financial systems the United States get off the ground.
Barack Obamas presidency began in January 2009, during the financial and economic crisis. He found a United States in a poor situation with worried citizens, a high rate of unemployment, a low consumption power, an economy in decline and a huge bank deficit.
So, his role was to improve the situation with some political, economic and social measures to bolster the failing United States economy. Consequently, to get an improvement of the United States economy, the President Obama and the eleventh United States Congress introduced a plan, in February 2009, just after the presidency elections, which was called “the American Recovery and Reinvestment Act of 2009”. This Act had two immediately main goals:
Create new jobs and save existing ones
Stimulate economic activity and invest in long-term growth : invest in infrastructure, education, health and “green” energy. The estimation of the spending amounted to $787 billion.
This plan was inspired by a Keynesian macroeconomic theory, which argues that, during a recession, the government should offset the decrease in private spending with an increase in public spending in order to save jobs and stop further economic deterioration.
In order to show if Barack Obamas plan was efficient to bolster the economy in the United States, we will explain the source of the crisis and Barack Obamas solutions to overcome the economic problems. In another side, we will illustrate all argues with an analysis of one American industry and one American firm, which was touch by the crisis, to show if there was an improvement after the introduction of Obamas plan. Finally, we will present some recommendation.
I) Obamas Plan to bolster the economy during the crisis
1) Origin of the economic and financial crisis
The crisis, knew as the Great Recession, began in December 2007. The first country to be affected by the economic recession was the United States following by most industrialized countries in the world.
The first stage in the recession is linked to the bursting of the housing bubble in 2007 : at the beginning of the year 2005, the economists observed a fast raising of the accommodation prices in the industrialized countries. In five years, their value increased from $30,000 billion to $70,000 billion. The explosion of the real estate bubble in numerous countries (the United States, Spain, the United Kingdom, France) reduced the activity in the sector of the construction, entailing a negative effect on the Gross Domestic Product. The decline of real estate prices caused a negative effect on the household owners and encouraged them to save money.
Furthermore, the American mortgage loans were, in summer 2007, the trigger element of the financial crisis which caused the economic crisis of 2008-2010. Indeed, some economists think that the origin of the crisis is linked to the debts of the American economic agents. However, the main element, responsible for the movement which touched all of the financial system, is the subprime crisis.
The second stage in the Great Recession was caused by the credit crunch in autumn 2008. It quickly affected the stock markets with a decrease of the prices. Furthermore, the credit crunch touched the companies and the households and it has heavy consequences on the world economic activity.
The credit crunch engendered heavy consequences on the financial sector. This second stage in the crisis is strongly marked by a banking crisis which began during September 2008 when several American financial institutions started to be in a situation of suspension of payment, and were either saved at the last minute by the Federal Reserve System (FED), or acquired by competitors in better financial situation. However, if they were in a critical situation they were put in liquidation.
This financial crisis accentuated the recession and forced the governments to take measures to revive the economy.
2) American recovery and reinvestment Act of 2009
In February 2009 the American Recovery and Reinvestment Act was introduce by the United States Congress, and signed by Barack Obama just after the beginning of his presidency, in November 2008.
The American Recovery and Reinvestment Act of 2009 was a plan to bolster the American economy thanks to an injection of $787 billion in the form of spending and tax reductions. Of this amount, approximately $80,9 billion are dedicated to the projects of infrastructure, $61,3 billion, to the sector of the energy and $12,7 billion, to the sector of the housing.
Furthermore, this Act contained some objectives to overcome the recession, which the goals consisted in investments in many other domains : employment, health care, education, homeland security and law enforcement.
The government of the United States helped the companies which were in a poor situation during the economic and financial crisis, to avoid a bankruptcy situation.
3) The automotive sector : example Chrysler corporation
a) Why this industry?
The crisis affected many economic sectors in the United States, and one of the most affected sectors was the automotive industry. It began in 2008, during the global financial and economic downturn. The automobile crisis touched Europe and Asia but the United States was the first one to be affected.
So, this industry describes and illustrates the effects of the financial crisis in the United States.
The situation of the automotive industry was rapidly touched by the crisis and the sales in the United States fall down brutally, and even the “Big three” were threatened. All around the world, the car manufacturers had to reduce their production and to dismiss some of their employees and sometimes they had to close some factories.
Furthermore, the crisis affected the prices which increased a lot and touched the energy sector. So, the energy crisis had for effects, the increase of the oil prices which affected the automobile industry. Indeed, the customer did not want to buy cars anymore, especially cars which have