About the economy

Dr.T asked:


To date the Obama economy has cost the US about $3 trillion in wealth. That’s only taken about a month and a half. At that rate, Obama will have eclipsed the entire unfunded obligation of the United States ($53 trillion) by the end of his second year in office. Is that right?

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caltam84 asked:


I know that the economy goes good the one day and bad several years later. The economy is bad like it is right now.

What’s your opinion about an economy that is always good and never bad? I think an that kind of economy is wonderful and considered I would be happy. I considered this a blessing.

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Craig Maugham asked:




Ever since the Wall Street started tumbling and the American economic crisis came out in the open in September 2008, there have been effects around the world. This disaster and meltdown was not restricted to this country alone; the repercussions are being felt across the globe.

It is aptly termed as a global recession.

The American Economy and the World Economy

Volatility and uncertainty are widespread at this time in the financial markets.

The growth rate of the world’s economy has slowed down.

China has been posting double-digit growth rates for the last four years. However, the growth rate has fallen to 9.0 percent in this quarter, according to the National Bureau of Statistics. This fall is primarily attributed to the unstable international economic climate.

Similar reports are coming from Japan, the second-biggest economy in the world. The Bank of Japan is Japan’s central bank. It’s Governor, Masaaki Shirakawa, has predicted stagnancy in economic growth of the country as the result of fallout of the economic recession in countries across the world.

With the American economy, development across different states of America, its lending to other developing countries and the overall state of affairs in the United States has a direct effect on the economic situation of other major countries of the world.

From current U.S.A. data, new home sales in the United States fell to their lowest level since the recession in 1991.

The Start of the 2008 Crisis

The present financial crisis in the U.S.A. had its beginnings in the highly acclaimed and popular sub-prime US home loans. These high-risk loans were packaged as derivatives or complex investment instruments and sold to banks and investors across the world.

The crunch began when people defaulted on these loans. Repayment delays and defaults in paying back loans started a grim chain of events in motion.

The worst-hit businesses were the lending banks. They became cash-strapped. Inter-banks loans alone could no longer ensure the smooth functioning of the world financial economy. It became clear that not all banks could survive this situation which could have led to bank failures across the world.

This caused world governments to pump in as much as three trillion dollars, in addition to huge cash infusions, into these affected banks.

ING, one of the largest banks in the world, reported a loss of around 675 million dollars in the current quarter. The Netherlands then announced a 13.4-billion-dollar bailout for ING.

Similar scenes occurred when South Korea offered of over hundred billion dollars in guarantees to meet offshore debts of their domestic banks. Britain’s Finance Minister, Alistair Darling, put up plans for boosting public spending to overcome the negative growth rate of the British economy over the last two quarters.

However, the overall sentiment was not all depressing.

The announcement by US President George W. Bush and the European leaders to hold various summits to address this worst world crisis since the Great Depression has brought some cheer into investors and markets alike.

The first summit is to be held soon after US presidential elections on November 4. The summit will primarily address reforms to set the international financial system right.

The most urgent need of the hour is an extensive overhaul of the system while preserving the traditional foundations of democratic capitalism such as free enterprise, free markets, free enterprise and free trade.

Critical Appraisal

The ongoing global financial crisis has many similarities to the Great Depression of the twenties. Major changes like bank failures, the worsening credit crunch, rushed mergers of banks and financial institutions, sinking stock markets and some financial giants tumbling cause similar sentiments to those which were common during that Depression.

However, the major difference is that there is no great change in day-to-day life of the common person. The Great Depression pushed millions of families into extreme poverty.

Today, while a significant number suffer severe hardship, most people are still able to purchase goods, ATMs are working, and the scale of job losses is not as massive at this point.

Some experts say that this indicates the current crisis to be more of a financial correction and subsequent panic, rather than a full economic meltdown.

This has still caused extensive damage to Wall Street institutions. But, so far, the repercussions have not been felt as deeply as during the Great Depression.

History has been a great teacher. Politicians, bankers and others at Federal Reserve, Treasury and elsewhere are well aware of how all this could translate and bring changes in the economic scene. They are trying their best to soften as much of the depressive effects and reduce the number and effects of business closures and stresses.

Although the world economy is witnessing immense uncertainty, there are certain safeguards within the economy as an aftermath of the Great Depression which are helping.

Unemployment rates were as high as 24.9% in 1933. The current rate is 6.1%. It may go up to 7% or 8% which has severe effects on those directly affected but is much less than during the Great Depression.

Most banks presently have Federal deposit insurance. Most investors do not have a risk of losing all their money. Foreclosure problems are restricted to subprime mortgages alone.

Presently about one-third of all homeowners have a clear and free title. The present Federal Reserve is not on the gold standard.

Interest rates can be decreased to increase liquidity.

The current tax structures are not entirely progressive. There are automatic stabilizers within the system.

The impact of a dollar decline in Gross Domestic Product may be offset by tax decreases and automatic government spending increases.

There are some safety nets put into place after the lessons that were learned from the Great Depression.

These include the Securities and Exchange Commission to regulate stock markets and protect investors, unemployment insurance, deposit insurance and various social security measures.

All these help to ensure greater flexibility in financial markets.

This may help the world economy to recover faster and reduce the speed and extent of negative events in the markets across the world.

The appraisal shows that there is definitely a recession but not all are convinced that we have, or may experience, a depression.

Many feel that the world economy will bounce back after two or three quarters and things will slowly start looking up.



Sources:

The Federal Response to Home Mortgage Distress: Lessons from the Great Depression by David C. Wheelock

America’s Greatest Depression 1929-1941, by Lester V. Chandler National Association for Business Economics

For more detailed information on the current situation and how you can protect you and your family order your copy of Surviving the Debt Crisis today.



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pdooma asked:


The oldest of the baby boomers are now 66. Over the next 10 years, most of the largest population group in the US will be tapping into Social Security, Medicare, will be pulling their money from their IRA accounts (ie, selling stock), and leaving professions like medicine and engineering.

So how will this drastic shift impact our economy?

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Vladimir Gonzalez asked:


Italy Economy

After once being the dominant political, military and economic power in the world, the post-war era of rapid industrialization left its mark on the Italian economy, which, today goes under the name of the ‘Sick Man of Europe’. In 2007, Italy had a population of 58 million and a GDP (PPP) of almost $1.8 trillion. Italy is the tenth largest economy, in terms of purchasing power parity, and the seventh largest in terms of nominal GDP.

At the end of World War II, Italy found itself at the heart of western European institutions, such as NATO, G8, the OECD, and the European Union. Italy moved rapidly from an agricultural economy to being an industrial power, and currently an industry led by services, which today make up 69 per cent of Italy’s economy, followed by industry 29 per cent, and agriculture 2 per cent.

With an extremely small bur robust medium enterprise sector, having family businesses Italy has not been so successful in its attempt to establish its multinational corporations. Well-known brand names from the fashion world, or wine or automotive industries, have once been family businesses. But since many of these companies are not highly technologically developed are facing increasing pressures from a globalized economy where manufactured goods can be produced at much cheaper prices in other countries.

 As a result, growth rates have been slowed to virtually zero and in 2007, the GDP growth was 1.5%, just a little above its prior average. Among the difficulties faced by Italy over time, there have been the high levels of corruption and organized crime, big unemployment and debt levels, illegal immigration as well as an easily seen difference between the north, advanced, and the south, poor.

By 1995, Italy’s debt reached as much as 124 per cent of GDP. The repeated attempts to bring these figures down have no been very successful, and officially, it is still close to 100 per cent. Though unemployment has steadily declined and now averages 6 per cent, it the south it reaches well over 20 per cent.

On the other hand, inflation, a major challenge for Italy, has in time been taken to manageable levels, though it is believed that prices have actually doubled with the introduction of Euro, and also due to thanks to the high corruption levels. Import growth is still outpacing export growth, which resulted in a trade deficit in 2000, of over $1.3 billion, less than in 1999, $14 billion, and in 1996, $60 billion.

 



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Sam Williams asked:


 

The US economy experienced negative growth rates in 2008 (especially in the third quarter). This was primarily due to a slowdown in the market for housing and a significant fall in the consumer spending levels. With the help of financial planners and advisors, it is probable that the US economy might recover in 2009, at least in the second half of the year. A recovery of the US economy is of paramount importance, given the degree of dependence of the world market on the former.

In an attempt to identify the causes for the slowdown in the American economy this year, William Testa (the vice president and regional director of the Federal Reserve Bank in Chicago) said that, about 70% of the total economic activity in the US comprised of household consumer spending. In the face of acute financial crisis, recession and credit crunch, the household spending figures have significantly gone down, causing economic growth in the US to be stalled.

The fear or anxiety of losing one’s job has primarily caused the common individual to cut down on his levels of spending. This retrenchment in expenditure has also resulted from a re-adjustment of personal portfolios and re-valuation of 401K and personal properties.

However, economic experts remain optimistic about the recovery of the US economy in 2009. Echoing this view, Ilian Mihov, professor of economics at INSEAD, added that, the victory of Barrack Obama (the first Afro-American US President) came as a fresh lease of life in this wave of expectations of an economic recovery.

Obama’s campaign strategy was largely based on the policies of an increase in government spending, and a reduction in the tax rates. These steps, if carried out in a focused and aggressive manner, are bound to help the US economy recover. Indeed, by the middle of 2009, it is expected that the economy will start moving in the right direction again. The Federal Reserve has already cut down its key rate from 1.5 to 1.0 per cent, in an attempt to bolster the economy via aggressive rate-reductions. This measure (which can be extended via further reduction in the key rate) and injection of more liquidity in the financial markets (also by the Fed) are likely to stimulate aggregate demand. This, in turn, should help the US economy get out of the current recessionary phase.

Other effective, yet unorthodox, steps are also being adopted by the Federal Reserve to counter deflation in the economy. The purchase of commercial papers (a money-market instrument) represents one such recession-fighting measure. Another step that might be considered is a significant reduction in oil prices. If people can get the requisite oil and gas amounts at a lesser price, (s) he will automatically have more cash that could be spent in other channels.

However, there is one factor critical to the recovery of the US economy by 2009. The transition of power from the office of George W. Bush to Barrack Obama should not take too long. A smooth transition of political power, aggressive anti-recessionary policies initiated by the Federal Reserve and fiscal stimulus (provided by the US Congress), along with help from personal financial advisors and financial planners, should be instrumental in the recovery of the US economy in 2009.

 

 



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Justin asked:


It seems like the government is getting bigger and bigger every year. I was just curious to know just how much the government is involved in the economy. If you looked at taxes and spending, what percentage of the total economy is the federal government involved in?

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deletecomplaint asked:


I heard that the economy will keep going down till after 2010, though it’s said that the worst part would be experienced before the 2nd half year of 2009. But I wanna know, how is the film industry influenced by the economy crisis? Is it gonna get better or remain the same or go down with the economy?

Thanks in advance for answering.

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mh c y asked:


I have to write an essay on the Economy.

Why are companies getting the bailout?

how this effects the economy/regular people?

Any other info on the economy is good too.

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