Global financial crisis and quantitative easing (2000s)
The 2000s tested the US banking system and the US dollar, especially during the global financial crisis of 2007-2009, which was the most severe economic recession since the Great Depression. Although the crisis began in the US housing and banking sectors, it actually strengthened the global safe haven position of the US dollar. In 2007, hedge funds and mortgage lending institutions began to go bankrupt; By March 2008, Bear Stearns was absorbed by JPMorgan Chase with the support of the Federal Reserve. In September 2008, the bankruptcy of Lehman Brothers reached the peak of the crisis, freezing interbank lending and triggering a run on money market funds, with one of them falling below one dollar. The global contagion effect has followed, with many foreign banks holding US mortgage-backed securities or relying on US dollar financing. The United States has taken large-scale response measures: the Federal Reserve has lowered interest rates to near zero, created emergency lending tools, opened dollar swap lines with foreign central banks, and become a global lender of last resort. The Ministry of Finance has launched a $700 billion TARP program to inject capital into banks and stabilize institutions such as AIG. FDIC guarantees bank debt and expands deposit insurance to $250000. Since the end of 2008, the Federal Reserve has started quantitative easing (QE) to purchase long-term treasury bond bonds and mortgage-backed securities. The Dodd Frank Act of 2010 implemented stricter capital and liquidity rules, while subsequent QE rounds (QE2 from 2010 to QE3 from 2014) supported a slow but stable recovery, expanding the Federal Reserve’s balance sheet to $4.5 trillion.
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