Our Country Has Money Problems. Now the Government Is Figuring Out How to Solve Them.

T he economy is not something kids ordinarily think much about, and many adults don't think about it, either.

But these aren't ordinary times. The U.S. economy and others around the world have run into serious trouble, so the economy is the biggest news of the year.

You might know firsthand about the economy's troubles because one of your parents lost a job. Or maybe you won't take a trip for spring break because your parents want to save money. Or you might have heard adults tossing around words such as "bailout" and "stimulus."

This may help you understand what is happening:

What Is an Economy?

It is a system in which people buy and sell goods (such as televisions) and services (such as haircuts). When your parents pay for a haircut, that means the barber has money to, for example, buy a TV. Money is the gas in an economy's engine.



When our economy works well, banks lend money to companies so those companies can operate and grow. Individuals go to banks to borrow money to buy houses, cars and other things.



What Went Wrong?

A lot of people made a lot of bad decisions. Banks loaned money to people who couldn't afford to pay it back. Government officials didn't watch the banks closely enough to make sure they were making good loans.



So suddenly, banks had loaned out a lot of money and weren't getting much of it back. And people who couldn't afford to pay back the money started losing their homes. (If you can't make the monthly payments, called a mortgage, the bank has the right to take the house back and not let you live there anymore).



If banks don't have money, they can't make new loans: to your family to buy a new car or to the car company to build a new plant. So businesses started to fail. People lost their jobs, and without the money from a job, they couldn't pay their bills.

How Bad Is It?

Today, 8.1 percent of people who want to work can't find a job. Just a year ago, it was 4.9 percent, though there have been times in the past when it was worse. Unemployment was at almost 11 percent in 1982. And it was at about 25 percent in what is known as the Great Depression of the 1930s.



Also, people have lost a lot of the money they were saving in stock markets. That's where people buy parts, or shares, of companies in the hope that the value of those companies will rise. But shares in the country's largest stock market have lost almost half their value in less than a year -- and TRILLIONS of dollars have been lost.



How Can It Be Fixed?

When the economy started to seriously slow down last year, George W. Bush was president, and the government gave money to -- or "bailed out" -- huge banks that were in danger of going out of business.



That bailout saved some banks but did not cure all of the problems. Many companies let some of their workers go (in what are known as layoffs) or went out of business. Now President Obama is taking further action.



Last week he announced a program to help people stay in homes that they bought but can no longer afford to pay for. It will allow as many as 4 million people to avoid losing their homes and to pay less than they owe.



Also, Congress approved a plan that would put nearly $800 billion into the economy to help get it moving again.



The money will go to many different kinds of projects, including building new roads, helping schools and providing aid to people who were hurt by the bad economy.



It takes workers to build roads and schools, so that means some of the 3.6 million people who have lost jobs in the past 13 months could go back to work. When people have jobs, they can use their salaries to buy goods and services. If people started buying lots of goods and services again, that would get the economy moving again, or stimulate it. That's why the plan is called a stimulus package.



Does Everyone Agree With the Government Actions?

The president says the government must play a big role in helping people get back to work. So the government is borrowing money from investors around the world to pay for the stimulus.

Some people oppose the stimulus package. They say that even if it helps boost the economy now, future generations of taxpayers -- that means you -- will have to pay back the money.



When Will Things Be Okay?

Nobody is sure. Some economists say we'll start seeing things improve late this year. Others say it will take longer. President Obama is urging Americans not to panic, saying he is sure that we will see better days.