Challenges of Revitalizing a Shrinking Economy Amid Financial Turmoil

The Obama team has a very difficult job ahead of them in shaping the shrinking economy. The financial sector is in turmoil. Getting loans from banks is difficult, consumers are minimizing on spending, businesses are cutting off employees and exports have reduced as oversees countries are slowly by slowly being affected. The fiscal stimulus that the president will inject into the economy could not have come at a better time because at least the people will create job opportunities for the thousands who have been affected by the crisis.

This stimulus will ensure that the crucial sectors such as education, health, infrastructure and energy. The government will have to support this endeavors not only in the short term but also the long term. The problem is in how to allocate the funds across the different sectors. Many other measures will have to be considered to help people pay their mortgages and minimize the danger of housing prices. On the other hand, formulating the programs is difficult.

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This can also go ahead to creating programs that will make people to engage in fraud so as to qualify for aid.

Injecting capital does not mean that the banks will start earning and that is why the Democrats want future tougher laws on policies and limits set in bank lending by raising the interest rates. Consolidation will also be required. The administration should therefore focus on helping those companies and organizations that are making an effort to recover. Guha K. The economy: All hands to pumps in bid for recovery, January 19 2009 5 The current financial crisis is termed the worst that has ever hit the country in decades.

Bail outs were given to companies like Fannie, Freddie, AIG and Citigroup.

The collapse of Lehman had serious effects to the international financial system and that is why it is necessary to measure the amount of money that is being used for bailouts. The purpose is to introduce a new systematic capital and insurance programme. Regulating banks will be hard because they usually ignore systematic risk as different banks will take different time frames to react to the crisis. Moreover, large banks are giving issuing mortgages so that they are able to raise money and this is very risky when they should concentrate on diversifying their loans on their borrowers.

This will entail knowing how specific banks deal with risk management. The banking system will be kept in check through assessment. The government should be involved in these initiatives as they are the ones who adjust the lending and borrowing rates. The proposals that are raised are therefore important in managing financial risks as this will prevent large companies from falling. Pedersen L. & Roubini N. A proposal to prevent wholesale financial failure, January 29

The voiceless people in society should be engaged in the economic matters as they are the ones who are primarily affected by such matters. If the government is egalitarian, they would favor tax cut so that the ordinary American is made better off. The poor are the ones who are feeling the economic pinch more than other people. Therefore, the government should make money transfers top the less privileged so as to enhance fairness in the American society. But political divisions have not made this easier as the policies that are made have continually favored the rich over the poor.

Government influence in the operations of big companies leads to the big people getting closer to the government and that is why they will always pass policies that will be in their favor. That is why during Roosevelt’s time he strived for monopolies to be controlled. The tax cuts are mot helping them much and that is why it is necessary that more of the fiscal stimulus is spent on public works as they will benefit more people. The president needs to concentrate in reducing tax cuts from peoples’ wages especially the poor and middle income earners. Glaeser E. L. Economix: The Case for Small-Government Egalitarianism, January 13, 2009