U.S. Politics/If the American economy is like a giant swimming pool then what is the Government doing to fix the
QUESTION: Hi. I am curious. I saw this video:
The man in the video explains how the American economy works in a funny but informative way. In this video he likens the American economy to a giant swimming pool, but he neglects to mention what the Government is doing to "fix" the "hole" in the "swimming pool." This piqued my interest. What IS the American Government doing to fix that "hole"? Please help- thank you.
ANSWER: Hi Jason,
I'll be glad to help with your question.
Really, the answer is a matter of opinion, but I'll be glad to offer mine. I suspect that the Federal Reserve would say that an attempt to fix the hole was made through keeping interest rates at zero for the past 6 years. That, supposedly, was the key to keeping enough liquidity in the economy to permit easy borrowing and lending. But, of course, that view is debatable since other informed people would argue that nothing is being done to fix the hole, or that the zero interest rates have been an ineffective remedy. As you can imagine, economic policy can be as divisive as social policy or other controversial issues! I wish that I could provide a more objective answer but the truth is that there isn't one.
I hope that this is helpful nonetheless!
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QUESTION: Thank you Marc for answering. What caused the "hole" in the "pool"?
Of course the creators of that particular video engaged in some creative license, so how they would explain "the hole" might be different from mine. But, if they meant that "the hole" was the 2008 economic collapse, the cause of that was the bursting of an over-inflated housing market.
That is, big banks/mortgage companies relaxed lending standards and extended credit to consumers with tenuous credit histories. This helped to boost home values. But then these consumers failed to make payments, resulting in huge losses for banks and mortgage companies, and a drastic reduction in home values. This was the original "hole" that the government attempted to fix through the multitude of bailouts. Whether those bailouts worked is a matter of opinion.
I hope that this helps!