CH8: Stabilization Policy

http://www.reuters.com/article/idUSTRE5126LM20090203

U.S. fiscal policy to be "very aggressive": Geithner

|summary|
Geithner said that with new economic stimulus and financial stability plans, the Obama administration is "going to do our best" to apply lessons from Japan's decade-long quagmire after real estate and stock market bubbles burst, in an interview with the wall street journal. Geithner told the newspaper that monetary policy has been very aggressive, and fiscal policy is about to get aggressive. Geithner also said that the U.S. situation is dramatically worse than today because collectively policy makers were a little slow to escalate both on the fiscal side and on the financial side. Debates last year about whether inflation or the crisis were bigger risks, whether policy-makers should be “trying to teach people a lesson or save the country?”

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This article explains Obama’s economics plan to financial stability learning lessons from Japan’s decade long quagmire after real estate and stock markets revealed. The already aggressive, monetary policy, which is an economic stabilization tool that operates through chances in the money supply to influence consumers and business spending; economic conditions, in the U.S, to battle against recession. Moreover, the fiscal policy is about to get very aggressive. Fiscal policy is the changes to the level of government spending and taxation with the goal of influencing economic conditions. As a result that the U.S. policy-makers were slow to realize the depth of the nation’s credit crisis and slide into recession, fiscal and monetary policies were made more aggressive. In this situation, government would lower taxation to influence consumer spending so that more money can circulate in the economy to bring it back into stability. With the monetary policy in effect, banks would lower their interest rates in order to increase spending by consumers.

|reflection|
I think the Obama administration that is strictly making fiscal and monetary policies more aggressive is a good step to take to start brining the economy back to stability. Because both polices have a goal of influencing economic conditions, the use of these policies in a more aggressive manner will only change the consumer behaviours which in turn would affect the economy in general. For example, If unemployment was the major economic problem, government would endeavour to increase their spending or reduce level of taxation. The increased spending by government would create new jobs.