When the Economy Crashes, Who Saves It?

Events such as wars and pandemics can spell disaster for economies. People lose jobs, stores close, and prices rise and fall in crazy ways. Basically, things stop working the way they’re supposed to, and most of the time, someone needs to step in and save the day. Who is that someone? It's not Superman. Historically, it's Uncle Sam that comes to the rescue.

Who Specifically Steps In?

Two big government players:

1. The Federal Government (like Congress and the President)

2. The Federal Reserve (a powerful group that controls interest rates and money supply)

What tools do they use?

1. Stimulus Packages

   

   These are like emergency money boosts. The government gives money to:

   - People (like with stimulus checks)

   - Businesses (so they don’t go bankrupt)

   - States and cities (to keep services running)

   
   

   Examples:

   • American Recovery and Reinvestment Act (2009): An $831 billion stimulus package under the Obama administration that funded tax cuts and infrastructure development, in response to the 2008 recession.

   • American Rescue Plan Act (2021): A $1.9 trillion COVID-19 relief package under the Biden administration that included $1,400 stimulus checks, expanded child tax credits, and increased aid to schools and state/local governments.

2. Lowering Interest Rates

   

   This means the Federal Reserve (sometimes referred to as The Fed) lowers the cost to borrow money. That way:

   • People can take out cheaper loans for homes or cars

   • Businesses can borrow to stay open or grow

   • Spending goes up, which helps restart the economy

     
     

   To put it simply, lower interest means more money moving around which means faster recovery.

   
   

   Example:

   • March 2020 (during COVID-19 pandemic): The Fed cut rates by 1.5 percentage points total in two emergency moves, bringing the federal funds rate down to 0–0.25%, its lowest level since 2008.

3. Quantitative Easing

   

   Based off the name, quantitative easing sounds super complicated, but it's actually really simple. Quantitative easing means the Federal Reserve buys lots of government bonds to put more money into the economy.

   
   

   You're probably noticing a pattern here, most of these methods have the goal of putting more money into the economy. Quantitative Easing is just another way to do this! At the end of the day, that's what it's all about. Governments give a quick kick start and let everyone else do the rest.

   
   

   Examples:

   • To combat the 2008 recession, the U.S. Federal Reserve ran a quantitative easing program from 2009 to 2014.

4. Bailouts

   

   Sometimes, the government directly helps big companies or industries (like airlines or banks) from going out of business. This method is a little controversial. Some people like it, some don’t, but the goal is to protect jobs and avoid chaos.

   
   

   Examples:

   • In 2008, through the Troubled Asset Relief Program, the U.S. government approved $700 billion to bail out major banks like Citigroup and Bank of America during the crisis.

   • In 2020 through the CARES act, airlines received $50 billion in grants and loans to keep flights operating amidst the COVID-19 pandemic.

   • In 2023, after the failure of Silicon Valley Bank and Signature Bank, the government stepped in to guarantee all deposits.

Final Thoughts

Next time you hear about a recession or any type of financial crisis, do some research on what governments are doing to combat it. More often than not, there's a lot to find. However, it's important to remember that this intervention isn't about completely taking over the economy, it's more like being the emergency doctor who steps in when the economy gets sick.

Think of it like this: a doctor can prescribe you medicine to help your body heal when you're sick, but it's ultimately your immune system that leads the way back to health. Similarly, government intervention can help the economy out in times of need, but it's ultimately the role of the economy to fix itself. If done right, intervention can save jobs, protect businesses, and help things recover faster. But it's also important to be careful: too much help for too long can lead to problems like inflation or debt.

---

Were there any methods of government intervention that you hadn't heard of before? If so, let us know in the comments down below.