This is a discussion for a Public Budgeting & Finance Course in the Public Administration Degree program
Description:
The banks have done it again! Investments in substandard collateralized debt obligations have tanked and banks are at great risk of failure. Worse, the domino effect is still in play and there are worries that large bank failures will cascade through the system laying waste to economies across the globe. The country has entered a deep recession with the following characteristics:
- Banks can no longer lend;
- Bank reserves are likely insufficient to cover losses;
- Businesses have no source of operating capital since banks cannot lend;
- Businesses are laying off employees in massive numbers; and
- As unemployment rises, demand for products plummets and business losses mount, resulting in more layoffs and even less demand for the products businesses sell.
Discuss the steps that government should take to address this situation. You can use the discussion of the government response to the Great Recession as a guide, but feel free to innovate and modify your response as you see fit. Be sure to address at least some of the following:
Questions:
- What general fiscal and monetary tools are available to you? Do you prefer one over the other? If so, why? What are the pros and cons of using one or the other?
- Would you save the banks again given that they obviously learned little from the Great Recession experience? If so, what would you demand in return?
- Would you float a stimulus bill to address falling demand in the economy? If so, what type of stimulus would you recommend?
- What do you propose to solve about worsening unemployment?