Essay Example on 2001 Recession: 8-Month Financial Downturn

The 2001 recession went for an eight-month straight period of the financial downturn. It started March 2001 and endured through November 2001 seeing the greatest devastating effect on the American economy. The economy contracted in the main quarter by approximately 1.1 percent. It improved to 2.4 percent in the second quarter, April to June. the economy contracted again in the second half f the year by 1.7 percent (Cynamon, Barry and Steven 382). The economy recuperated in the final quarter, October to December, developing 1.1 percent general increment. Joblessness reached a whole new 5.7 percent in December 2001. That is somewhat more than the characteristic rate of joblessness in the American nation. Managers held up to lay off workers until requests were sufficient to maintain the operations of their firms.

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Monetary policies have been reduced to increasingly low levels in the economy. The fundamental explanation behind keeping up accommodative financial conditions has been to turn away the danger of monetary crunches and to counter deflationary pressure that a rise from the poor monetary policies such as low-interest rates. Given the budgetary interruptions which prompted what is currently generally called "the 2001 recession", the decrease of interest rates has counterbalanced the exorbitant increment in getting costs brought about by the augmenting of money related spreads. From this point of view, money related strategy activities have favored borrowers (Stock, James and Mark 72). Over a similar period of 2001, the returns on safe money related resources were exceptionally discouraged. This has inferred that from one viewpoint, savers looking for safe speculation openings ended up tolerating incredibly low rates of return - conceivably negative when remedied for investments. While then again low rates have the cost of assets and, thus, have favored family units and firms with a positive net worth. However, given the length of the monetary slowdown and the constancy of the low-interest rates condition, there was imminent trouble for venture atmosphere for savers, thus the inescapable recession.

Gross Domestic Product (GDP) is a clear indicator of the improvements in the economy. In 2001, the general level of GDP reduced drastically, thus, there was need by the Federal Reserve Open Market committee to ensure that they stabilize the economy by reducing the level of the inters rate to increase production as means of improving the GDP (Stock, James and Mark 72). However, as history will have it, this led to the 2001 recession that impacted negatively on the American economy. On the other hand, the Consumer Price index (CPI) shows the general indication of the cost of products in the economy. With an indicative high price index for most goods due to the increase in the cost of production, the Federal Reserve Open Market Committee saw it befitting to reduce the interest rate as a way of managing and controlling the citizen welfare and general cost of resource (Maestas, Kathleen and Alexander 179). This served the interest of the households for sometime before it actually backfired on them.

I am in agreement with the decisions made by the Federal Reserve Open Market Committee in coming up with such measures as a means of stabilizing the economy. The only different emerged at the point where the recession period set in due to the uncontrolled rate of interest rates and cost of goods in the market at large (Cynamon, Barry and Steven 382). The recession period, therefore, arose as a result of the low-interest rates in the same period. It impacted negatively on the lives and the general welfare of the citizens.

Works Cited

Cynamon, Barry Z., and Steven M. Fazzari. "Inequality, the Great Recession, and slow recovery." Cambridge Journal of Economics 40.2 (2015): 373-399.

Maestas, Nicole, Kathleen J. Mullen, and Alexander Strand. "Disability insurance and the great recession." American Economic Review 105.5 (2015): 177-182.

Stock, James H., and Mark W. Watson. "How did leading indicator forecasts perform during the 2001 recession?." FRB Richmond Economic Quarterly 89.3 (2003): 71-90.