Financial Situation of the United States

The economic problems that are plaguing the United States economy at the present are numerous to say the least. Since the collapse of the Housing market, the United States has experienced what some have come to call an economic recession. While it remains to be seen if the United States economy is really undergoing a recession at this point in time, this situation can be used as a great opportunity to point out the current struggles of the American economy. The fundamental flaws and structural weaknesses of the American economy are not only more visible now but also more potentially damaging.

The current weakness that the American currency is experiencing coupled with the exponential increase in oil prices may have arguably not placed the country into recession but have brought its economy pretty close to it. As such, this brief discourse will try to examine what brought about this economic collapse by identifying the present economic threats to the United States; namely, Pension Underfunding, Public Debt, Overbuilding in Calamity prone areas, Retirement and Social Security and Energy.

This will be done in the light of the effort of the Federal Reserve to address the this issue and will be accompanied by an assessment of the effects of these policies on the current financial situation. Efforts of the Federal Reserve The current economic crisis that has rocked the global economy has prompted many countries to take drastic measures in order to deal with the situation. The Federal Reserve and the National Treasury have also teamed up to deal with this global economic crisis by instituting several reforms and policy changes.

With the goal of providing an immediate and permanent solution to the problem, the Treasury, with the help of the Federal Reserve, has instituted these five fiscal policies to alleviate the situation. One of these policies is the voluntary capital purchase program. It is aimed at selling preferred shares of stock to the United States Government on favorable terms that afford the maximum amount of protection to the taxpayer. Another policy that has been implemented is the systematic risk exception under the FDIC Act which grants the FDIC the power to guarantee, on a temporary basis, the senior debt of all FDIC insured institutions.

The third policy that has been announced is the increased access to funding for all of the businesses in various sectors of the American economy. The goal of this is to stimulate economic growth on a micro level in order to develop solid economic fundamentals that can help resuscitate the economy. Other steps that the Federal Reserve and the National Treasury have taken include the strengthening of capital position and funding ability of American Financial Institutions. These are to be achieved through multilateral agreements such as the reciprocal currency arrangement (Swap Lines) with International Central Banks.

Finally, the heralded US $700 billion bailout plan that was recently enacted into law has also been designed to infuse much needed capital into the market and to protect the exposure of several multinational and local financial institutions. Despite all of these moves by the Federal Reserve and the National Treasury, however, it still remains to be seen whether or not these “quick fixes” can actually provide real and lasting solutions that have been caused by poor economic fundamentals.

The direct relationship that interest rates, inflation and even higher wages have on the amount of money supply is a matter of importance for the Federal Reserve because as shown in this study, and change in these factors could increase or decrease the money supply and adversely affect the economy of the United States. The key for the Federal Reserve then remains in being able to closely monitor these factors and be able to anticipate any sudden changes and react accordingly by utilizing the many tools that are at their disposal.