The fiscal policy used during previous recessionary periods is the expansionary fiscal
policy. The expansionary fiscal policy allows the government to influence economic
conditions by providing tax cuts and increasing discretionary government spending. The
government may lower tax rates or increase spending to encourage demand and spur
economic activity. Conversely, to combat inflation, it may raise rates or cut spending to
cool down the economy, in which we are experiencing at this moment with current inflation.
With COVID-19, the government had its “lesson learned” from the past recession in 2008
and before the pandemic turmoil hit the market, the Fed was offering $100 billion in
overnight repo and $20 billion in two-week repo. Throughout the pandemic, the Fed
significantly expanded the program—both in the amounts offered and the length of the
loans. During the pandemic, unemployment rates were not as high as when the recession
hit. Also the housing market even went up about 11% or so during the pandemic. When the
great recession hit, the housing market went “downhill” as borrowers could not keep up
with payments and there was not as much help from the government then, so many lost
their homes or had to short sell and not get the full equity or value of the house.
The fiscal policy used during previous recessionary periods was expansionary. The
government can influence economic conditions through tax cuts and increased discretionary
government spending under an expansionary fiscal policy. During the COVID-19
pandemic, mortgage forbearance provided enormous relief to homeowners. However, for
many borrowers, it will come to an end in the coming months, and when it does, the focus
will shift to the adequacy of the loss mitigation toolkit. Naturally, industry experts will look
to the Great Recession for guidance and lessons learned. When they do, it is critical that
they understand the differences between the two economic crises. Look at home price
appreciation and unemployment rates to understand the differences between the crises.
These two variables are important in explaining mortgage delinquencies and foreclosures:
negative equity and unemployment. The unemployment rate rose from 4.5 percent in
December 2006 to 10 percent in October 2009 during the Great Recession. The recovery
was slow, peaking at 6.9 percent in 2013 and falling to 3.5 percent in early 2020, just
before the pandemic. The COVID-19 unemployment shock, on the other hand, was much
larger, and the recovery was more robust, with the unemployment rate rising from 3.5
percent in February 2020 to 14.8 percent in April 2020, then rapidly falling to 6.9 percent
in October 2020 and 6.1 percent in April 2021. However, the unemployment rate remained
stable from March to April 2021, implying that future job growth may be more gradual. As
the vaccine rollout continues, schools reopen in September, people return to work, and the
economy continues to recover, the unemployment rate is expected to fall, allowing more
borrowers to exit forbearance and resume full or reduced mortgage payments. The COVID-
19 crisis is unlike the Great Recession in that home price appreciation has become an asset,
and unemployment has been the sole economic disruptor. Policymakers can ensure that the
loss mitigation toolkit takes this critical distinction into account. One limitation is the time
from determining that a recession exists to the time the fed can implement expansionary
fiscal policy.
The government implemented programs during the great recession, include the Economic
Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 or ARRA.
The recession began in December of 2007, and the Economic Stimulus Act was signed into
law on February 13, 2008. This was a rapid turnaround for implementing this fiscal policy.
The ARRA was not enacted until 2009, after it was seen that additional investment was
needed.During the great recession, home values plummeted by 25 percent from the 2006
peak to the 2012 trough. During the pandemic, home prices increased by 11 percent.
During the great recession, the unemployment rate rose from 4.5 percent to 10 percent by
the end of the recession. During the pandemic, the unemployment rate increased from 3.5
percent in February 2020 to 14.8 percent in April 2020, before declining swiftly to 6.9
percent in October 2020 and 6.1 percent by April 2021. This data is summarized from
(Neal and Goodman, 2021). During most recessions, the fiscal policies that were used were
the expansionary and a bit of the contractional. In terms of the government it was
expansionary where money was given in stimulus to various sectors and within household
contractionary. Where stimulus money was given in areas such as loans and interest rates
were varying, independent personnel were monitoring their own spending. I for one cut
back on my household spending, my extras and all during the recession. In 2008 I was
working in an industry with Real Estate. Many of us lost our jobs and I saw the writing on
the wall before it happened. I saw people taking loans with income that for sure did not
match. Their monthly payments and revolving interest rate loans were way more than their
monthly income could support. I said to my old boss, this is going to crash and burn. One
year later most of us were unemployed.
With regard to the current fiscal climate, Covid definitely did a number on our economy
and what is now another recession. Have we been declared official yet as being in a
recession? The price of everything is high, interest rates are high, the unemployment rate is
high, although are they all being counted? Someone can't collect unemployment if they
haven't worked in 2 years. The stimulus money created a population of people who don't
want to work. The money should have been given to those who lost their jobs, not to those
who made less than a certain amount. I saw people using the money for shopping and
vacations. I saw people using the rent and utility moratoriums as an excuse not to pay their
bills and to hold on to money even though they continues to work. The Covid recession
was a ripple effect out of illness and fear of the unknown and now folks are talking about
how things should have never been shut down because of the financial impact it has had on
our economy. People who worked from home want to continue to work from home in their
slippers. They want to be compensated for coming back in? I'm seeing it everyday. I
worked at my work location the entire time. There was no sitting at home. What is the right
and wrong answer? How does everyone feel about it?
The limitations of fiscal policy include: borrowing limitations, budget requirements, to help
with serious economic hardship.
The fiscal policy that has been used during the previous recession is the expansionary fiscal
policy. The expansionary fiscal policy influences the government's economy by giving tax
breaks and increasing the government's spending ability. Also during this period the
unemployment will increase and a decrease in income.
Fiscal policy during the COVID-19 recession differs from normal recessions because
COVID-19 created a force recession ( or is creating a forced recession) during a normal
recession is it usually the mismanagement of funds by the government. During the COVID-
19 recession there was a $5.2 trillion fiscal policy response to the pandemic. The
government provided the citizens tax breaks, PPP loans, stimulus payments and a host of
other breaks during the COVID-19 recession! The Hospitals took a major hit during this
recession.
During the normal recession the US government decided to go with a stronger spending
policy to combat the recession for example the 2008 recession. During this recession the
government decided to utilize tax break cuts to help stimulate the economy. Also, during
this recession other industries were hit like development companies.
The states have limited options for dealing with a severe budget crisis or recession. These
restrictions include the need for a balanced budget, limitations on borrowing, and a lack of
revenue capacity to handle significant economic disruptions. Contrarily, the federal
government is theoretically exempt from dealing with these restrictions. However, there is
no agreement on what a "balanced budget" requirement entails. Some states have exact
rules for what makes a balanced budget, while others do not, and the state's political culture
influences whether the limits are enforced. The United States is currently facing
monumental fiscal challenges posed by the economic and revenue impacts of the
coronavirus pandemic. The COVID-19 crisis is very different from the Great Recession;
home price appreciation has become an asset, and unemployment has been the sole
economic disruptor. For the duration of a recession, the government might lower taxes, or
raise the aggregate demand by issuing tax stimulus rebates. During the 2008 recession,
passed a $152 million stimulus to attempt to offset the recession. A major disparity in fiscal
policy during the COVID-19 recession is the amount of government spending in the health
sector. CMS.gov reports that federal government spending on health care increased by 36%
in 2020.Another major difference is the industries most affected. During the Great
Recession, manufacturing industries as well as construction were the hardest hit, while on
the other hand, during COVID-19, industries most affected were hospitality businesses.
During previous recessionary periods the fiscal policy that has been used is the
expansionary fiscal policy. This policy allows the government to influence economic
conditions by providing tax cuts and increasing government spending. It also includes
transfer payments and rebates. It can increase discretionary government spending, infusing
the economy with more through government contracts. During a recession aggregate
demand in the economy falls which generally results in decreased employment, lower
business revenue, and lower business investments. Expansionary fiscal policy can increase
interest rates, growing trade deficit, and accelerating inflation. COVID-19 is very different
from normal recessions. Home price appreciation has become an asset and unemployment
has been the sole economic disruptor. During the recession, construction and manufacturing
were hit the hardest where as though with COVID-19 it affected the leisure and hospitality
industries tremendously. During COVID-19 millions of people lost their jobs while
businesses closed and some never to reopen. All in all, a recession is totally different from
a recession although they have similarities I believe they have strong differences as well.
Covid-19 was something the world never experienced before.
Neal and Goodman, M and L (2021). Understanding the Differences between the COVID-
19 Recession and Great Recession Can Help Policymakers Implement Successful Loss
Mitigation.https://www.urban.org/urban-wire/understanding-differences-between-covid-19-
recession-and-great-recession-can-help-policymakers-implement-successful-loss-mitigation
