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US & Spain: how the ECB and FED responded to the financial crisis

US & Spain: how the ECB and FED responded to the financial crisis. Maggie Duthaler  Juliet Zawedde. Before the Crisis: USA. long period of growth before the recession real GDP started to fall consumer spending began to decrease changes occurred in the housing market.

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US & Spain: how the ECB and FED responded to the financial crisis

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  1. US & Spain: how the ECB and FED responded to the financial crisis Maggie Duthaler  Juliet Zawedde

  2. Before the Crisis: USA • long period of growth before the recession • real GDP started to fall • consumer spending began to decrease • changes occurred in the housing market

  3. long period of growth before the recession encountered situations the economy was unprepared for ie. a mounting debt and hedge funds banks needed to discriminate between good and bad debtors  Before the Crisis: Spain

  4. During the Crisis: USA • home prices fell and homeowners began to default on their loans • growth of the job market slowed from 1.6% to .8%- in 1 yr. a total of 32,143 jobs were lost • consumption and investment components of GDP decreased

  5. systemic shortage of liquidity Increased credit risk Between 2008 and 2009, GDP declined by about 3.6% Decrease in trade demand contraction in investment and rapid unemployment rate  Public debt crossed the threshold of 50% of GDP   During the Crisis: Spain

  6. Reactions by the FRB • FEDs main response was also open market operations •  QE and QE2 plan • Bought $600 billion treasuries • FED lowered the interest rate to 0% with hopes of increased investment • the government implemented a $800 billion stimulus plan 

  7. SPAIN: ECB adjusted the distribution of liquidity over the reserve maintenance period, providing liquidity earlier  used open market operations to steer their interest rate adopted a fixed rate tender procedure with full allotment for all of its weekly main refinancing operations and its longer-term refinancing operations with maturities of up to six months increased the number and frequency of longer-term refinancing operations  increased cooperation between international central banks Reactions by the ECB

  8. Improvements as of 2011: USA • GDP has increased consistently, averaging $14,575 billion • consumer spending has increased by 2.8%, the highest rate since before the recession • unemployment has decreased with the creation of jobs from the stimulus package, from 9.4% to 9.0% in the last quarter of 2010 • however, larger political problems have made resolving the large public debt difficult

  9. in the beginning of 2010, GDP began to increase gradually, after 3 quarters of decreasing the spanish government implemented a plan to decrease its debt however, the unemployment rate still remains at a very high level Improvements as of 2011: Spain

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