United States Economy

In 2007, the American economy began to slow significantly, mostly because of a real-estate slump and related financial problems. In December 2007, the economy entered a recession, according to a committee of academic economists.

The economy was last in recession in 2001. Contrary to widespread belief, the terrorist attacks of 2001 did not cause the downturn that year. The economy slowed as the dot-com bubble started leaking in early 2000 and began to shrink in early 2001. The recession ended in

November 2001.

Yet there are also now increasing worries that a boom in consumer spending, helped along by more consumer debt, played a large role in lifting economic growth over the last generation.

If this is the case and if the end of the debt boom leads to slower consumer spending, as seems to be happening, economic growth may slow significantly in coming years, even after the recession ends.

I have to be honest, these last sentences worries me a lot. Economic growth that’s payed by loans that people can’t repay... . It reminds me of The Great Depression in the early thirties. People bought there radios, fridges and cars by loaning money. Of course it isn’t a problem as long as there is a steady growth, but it is a complete other story when recession is around the corner.

And this is not only of cencern for the United States.
The United States produced roughly $15 trillion worth of goods and services in 2008, making it easily the largest in the world. China is next, at about $12 trillion. So these problems concern the whole world. From the United States to China and Japan to Europe and even Russia.

Source: An article by David leonhardt, Jan. 8,2009 on http://topics.nytimes.com/topics/reference/timestopics/subjects/u/united_states_economy/index.html

Blog written by De Clercq Stijn

Deflation warning bells ring louder

For the first time in almost 50 years American economists will be likely to determine a deflation again. There will probably be a year-over-year drop in prices and the last time something like this happened, was in 1955. The probable deflation will be reported Friday morning the 26th of February by the government.

A lot of people (and most likely shoppers) see this as good news. Though deflation might be a big threat to a country’s economics; while prices drop consumers and companies postpone their expenditures and investments because they are hoping to see the prices drop even more. In order to keep selling products, companies of course have to drop their prices. But in order to drop their prices they have to lower their costs. Mostly companies lower their costs by dismissing staff members or cut in salaries. These staff members then have a lower income and have to save on certain expenditures. So companies sell less than before and again, they are being forced to lower their prices, and again they have do to this by firing people and cutting in salaries. This is what we call a deflationary spiral.

Some people associate deflation with the Great Depression and fear the same consequences, but American economists can assure us that the year-over-year drop in January was only 0.1% and nothing alike 10% in 1932. So it will definitely not be as bad as the Great Depression of the 1930’s.

An important cause of the deflation is the drop in gas prices. Since gas is pretty much the source of everything in an economy, it has had a big influence on consumer prices.
This influence was mainly noticeable in food prices.

Deflation definitely is very bad for a country’s economics. According to me the consequences deflation carries along are much worse than inflation. If there is inflation prices rise but there is a price index that makes sure the salaries rise along with the prices. Also people aren’t going to postpone their expenditures, on the contrary: they’re going to spend as quick as possible when there is inflation.

I certainly hope the United States’ economics isn’t going to end up in a deflationary spiral because this would be very bad news for a lot of American families and companies.

Source: http://money.cnn.com/

Obama signs $787bn stimulus plan

The new president of the United States, Barack Obama, has signed a $787bn economic recovery plan in Denver. With this plan, they hope the federal money starts to flow toward infrastructure projects, health care, renewable energy development and conservation programs.

According to Obama, this plan is supposed to be the best recovery plan in the history of the US. Obama knows for sure that the signing of the plan means the beginning of the end of the economic problems of today.
First of all, the recovery plan promises the Americans to create or save about 3.5 million posts. A lot of jobs will be available in areas such as roads and rail infrastructure, which are actually critical areas.
Besides, the plan has to boost the consumption and rebuild infrastructure. With this investment, Obama hopes there will be new discoveries and breakthroughs in science, in medicine and in energy. That would lead to a stronger economy, a safer nation and a safer planet for our children.

Republicans are critical of this hopeful recovery plan. At the beginning, they say that the tax cuts are insufficient. They are sure that it will result in a debt for the following years.
Secondly, the Republican chairman warns that there aren’t that much jobs available. He’s quite sure that Americans who are looking for a job will be disappointed.
Finally, they accused the Democrats to work on their own. According to Republicans, a plan is successful when Democrats and Republicans work together to solve the economic problems.

My opinion is a bit divided. According to me, this plan is hopeful and will lead to a better situation than today. When you do efforts to make a situation better, you always have positive results. It’s better than doing nothing, I guess.
But I think that Obama is too enthusiast. One plan can’t make a big difference. For example, the 3.5 million jobs which are promised are a bit over-estimated.
Although a lot of money has been invested in this recovery plan, I’m not sure at all the plan is worth it.
The plan got no Republican support; I understand their opinion. Democrats have to take into account Republicans. According to me, they must work together to make a successful plan.

Source: http://news.bbc.co.uk/2/hi/business/7895078.stm

Prices pass through hard times

What about the prices in the US? The country is faced with difficulties and competition for some time. Because of the economic crisis, not only the US but the whole world is suffering severely by this financial trouble. The US is confronted with numerous problems, for instance the unemployment keeps increasing, the companies become bankrupt, the trade is declining and now, the prices are rising. But is this increase worse than we think?

In 2008, US prices rose hardly anything, so there was merely a gain of 1.8 per cent on the year. The increase was the first time in six months after the fluctuations in energy prices. Although an increase in prices grate on people their ears, it is of little importance. So the Consumer Price Index rose only by 0.3 per cent in January. Core price inflation, which excludes food and energy, rose by 0.2 per cent and is much higher in comparison with December. The energy prices also rose, yet still remained below the peak level in July 2008.
Petrol was the cause for the prices who were pushed higher. Moreover prices for transportation, medical care, apparel, food and education also rose last month. Another reason for the increase in prices is due to companies raising prices for the new year after offering deep holiday discounts.
So we can conclude that the rebound is unfavourable and deflation remains a risk. Wholesale prices were down by 1 per cent, which is a big annual decline since 2006 and forms a sharply contrast with consumer prices. Successful the US Federal Reserve reached to a solution quite recently, the establishment adopted an inflation target of 2 per cent, so there is less risk of deflation.

The whole story kicks up a dust, the ultimate consumer experiences everything intense. So when the media publishes such information, the crowd believes it is bad, even when it is not. They change their attitude and the economy suffers under it. My opinion is to stimulate plans the government enforced, to keep the inflation stable is an important target for the economy. There must be trade to have a healthy economy.

Written by Marie Maes

Source: The Financial Times - 20 February 2009
Article: US prices rise by 0.3% in January
By Alan Rappeport in New York

California passes budget after scathing battle

Take-home pay for Californians is about to shrink. Jeans, hammers, burgers and fries will cost more. Public school children will have to use old textbooks and find more classmates sitting next to them. Parents will receive fewer tax benefits, and state university students will pay 9 percent more in tuition.

The pact contains $14.8 billion in spending cuts, including to public transit, health care, schools and the courts; $12.5 billion in tax increases; $5.4 billion in new borrowing; and the creation of a $1 billion reserve fund.

Personal income tax rates will rise by one-quarter of a percent, and the state sales tax will climb by 1 percentage point, to 6 percent, though each county will have different rates and the average will be 8.9 percent. The state’s vehicle license fee — which Mr. Schwarzenegger abolished with great theatrics when he took office in 2003 — will nearly double, to 1.15 percent of the value of the vehicle.
Left on the cutting-room floor was a proposed 12-cent increase in the gasoline tax lawmakers filled the gap instead with $600 million in cuts and an infusion of federal stimulus money.

Allright, every state in the United States has financial problems nowadays due to the economic crisis but I think that Mr. Scharzenegger and his colleagues are taking the wrong measures here.
Governments need to take measures that gives people the oppurtunity to spend more money in these times in order to increase prosperity according to me.
The more money that people have, the more they will spend and the more that others, including the government, will profit from it. Mr. Swarzenegger is doing the opposite now, fewer tax benefits, even an increase of taxes and an education that is getting more expensive (and worse!). An other problem is the fact that the government is creating a big problem for the future with the huge costs for the intrests of such a loan.
I really don’t understand that they didn’t approve the proposal for a 12-cent increase in the gasoline tax. It is common known that there are too many cars on the roads and that the U.S has difficulties with reaching their goals for less pollution. This could have been a win-win situation here. But I guess it is just un-American to raise taxes on gasoline.

Source: http://www.nytimes.com/2009/02/20/us/20california.html?pagewanted=2&_r=1

Obama to Treasury: Start cutting taxes

The new president of the United States, Barack Obama, has already done a lot of efforts for helping out the American economy, which has already known a lot of problems lately.
The plan to start cutting in taxes for 95 percent of the Americans is part of a $787 billion economic recovery plan that has been passed by the democratic party of the United States government.

The idea to let hard-working American families pay fewer taxes (up to $65 a month) came up a while ago and has the intention to improve the American economy. When people have to pay fewer taxes they can consume more and this causes a higher demand.
A higher demand should improve the well being of a country’s economics.

Included in the $787 billion economic recovery plan is of course the $282 billion for tax cutting, but also $120 billion for public works projects including highway and rail projects, which should be a minor solution to the fast growing numbers of unemployed people in the United States.

Barack Obama is very motivated and finds it very important for his presidency to save the economy of his country, since the economy is deteriorating even faster than in the great depression of the 1930’s.

Obama also stated that signing this plan into law is only the first step to a recovery of the American economy; he realizes that it will definitely not be easy!

I think this is an excellent idea of Barack Obama. Cutting in taxes is great news, everybody will love the idea and of course people will start consuming more. A higher demand is the base of a growing economy. Also, investing in public works is a great way to improve an economy by lowering the numbers of unemployed and again, causing a higher demand.

I think Barack Obama is a great president for the United States. He’s not only very sympathetic, he also is a very clever man and I think that everybody realizes that when looking to his ideas and plans.

Source: http://edition.cnn.com/US/

G.M. Says New Loan Is Adequate to Save It

General Motors (G.M.), the largest car constructing company of the USA requested for federal aid again. $ 12 billion in loans, which brings the total loan at $ 30 billion. The company needs this last loan to carry it through the biggest reorganization in its history and especially to cover the continuing losses.

G.M. which earned their last profits in 2004 will end 2009 with $14 billion shortfall, but according to the restructuring plan they are going to improve to a $6.6 billion surplus by 2012. The restructuring plan also tells us that the losses will shrink in the next three years, due to savings that will contain cutting 47000 jobs worldwide and closing 14 plants. G.M. also has to negotiate with the United Automobile Workers union and the bondholders to reduce costs further.

C.M. is not only counting on saving but also on a steady recovery in car sales. On the other hand the US vehicle sales this year are on their lowest point in more than 25 years and not many industry analysts share G.M.’s optimism for a recovery.

Not only the union and bondholders are negative about the restructuring plan also Moody’s is, they said there is a 70 percent probability that one or both companies (G.M. and Chrysler) would have to file for bankruptcy protection.

The government is expected to review the plans by the two companies in the next week.
G.M. and Chrysler will face political opposition from some quarters when they try to win the task force with their plans.

I think that the US government has to support G.M. and give them the loan under certain conditions because otherwise everybody loses. All over the world employees lose their work, the government will lose all the loans they have given to G.M.
When the government gives G.M. the loans they asked for, there have to be some conditions. The government has to look close to the financial situation of G.M.

I also think that the government isn’t going to accept that G.M. is closing so many plants and fire so many employees, resulting in a big unemployment. So I think G.M. has to search other methods to save money and reduce costs.

Source: http://www.nytimes.com/2009/02/19/business/19auto.html?ref=economy

US unemployment rate reaches 7.6%

All over the world, the crisis has negative consequences. Let us think for example about the US housing crisis and the interest rate that hasn't been this low for years. But also the employment wasn’t safe from the economic crisis…

We could say that the unemployment reached its highest level since 1992. Official figures tell us that the rate rose from 7,2% in December to 7,6% in January. Due to the recession which started in December 2007, 3.7 million jobs were lost in the United States. Almost half of those jobs were lost in the last three months. This has several reasons. At the beginning, the auto sector crossed out 207,000 jobs. Also other sectors, like construction firms, the hospitality sector, professional and business services, have problems and cut a lot of jobs. According to economists, the situation is worse than they expected.

According to the president of the US, Barack Obama, the figures are quite alarming and demand some action. He wants to do something for all the people who lost their job, so he urged the Congress to pass his economic stimulus package without delay. He really wants to make the economy better during his presidency.

My opinion is that this situation is very awful and serious. Every job that gets cut, is one too much. But I think it’s very difficult to make this situation better, because the economic crisis is responsible for this situation and the period of recession has to repair itself. We can’t do a lot of things to make it better, I think we have to wait and be patient.
I really have confidence in Barack Obama. I think he will do all he can to make this situation better.

Source: http://news.bbc.co.uk/2/hi/business/7874955.stm