Is the US heading towards another great depression? Its economy has showed a gradual decline since 2007. Job cut is one of the most important economic issues in the United States of late.
No doubt, the market has improved to a certain extent, but things have still not stabilized as desired. There were several signs, which indicated that things were not what it used to be in the glory days, but we didn't pay heed. And this responsibility falls right at our doorsteps. We have taken loans to maintain the kind of lifestyle that we can't afford, which in turn has put tremendous pressure on the financial institutions in the form of unpaid debts.
Due to this reason, even sustaining oneself has become very difficult, and hence, banks have gone bankrupt. The number of items imported from other countries has increased over the years, and the exports have dwindled. The following paragraphs will provide you with an idea of the causes of such problems in the United States in detail.
Reasons Behind the Trouble
Problems with the world economy started long before they actually began in the United States. There are several countries in Europe and Asia that faced severe economic recession and depression, which has affected the economy of the United States.
When it was at its peak during the 1990s and in the early part of this decade, some major countries of the world were facing problems with their economy. This resulted in people from these countries investing in several sectors of the US economy (for instance, the real estate). At that time, the lending rates were low, and inflow of foreign funds were quite high, which made the credit condition of financial institutions easy.
Since a lot of funds were infused into the real estate sector, there was a boom in its market, resulting in the prices of houses increasing. Due to the low interest rates, banks started financing people to buy such high-priced houses, even though a person did not have good credit history.
Over a period, there was a decline in the prices of houses, and as such foreign investors accumulated huge losses. The prices of houses fell to such an extent that they were less than the borrowed amount. This led people to opt for foreclosures rather than paying off the loan, which left the banks accumulating significant losses. This can be said to be one of the main starting points of economic problems in this country. There are several other causes to this situation, which have resulted in a rippling effect of several major economies of the world.
Due to the effects of economic recession, unemployment has increased, which has led to decrease in demand of several products. Due to the decreasing demand, manufacturers have started producing less, so as to sustain their profits. And to sustain profits, they had to reduce the number of people working in their plants, leading to further reduction in demand.
Decreasing demand meant that the profit margins of companies reduced to a great extent, due to which they had to downsize their workforce, leading to loss of jobs.
Today, the federal government has taken steps to boost production so as to help organizations to create jobs, and in the process, increase consumption.
In the recent past, the amount of commodities exported by United States has lessened considerably. Not only in this country but also in several major European and Asian countries, the number of baby boomers has increased, and as such, there has been an increase in the social security benefits for such people and decrease in consumption. This has decreased demand, and as a result, US economic crises aggravated.
The Obama administration has proposed, and in some cases, has also implemented certain changes in the legal, economic, and fiscal systems of the United States. A prominent example is that of Credit Card Reform Act 2009, which was passed in order to implement certain accountability related changes in the working of credit card companies and their billing cycles.
In addition, sub-prime lending and property rate appraisals are also being discouraged, and a proper, mature mortgage and loan underwriting process is being implemented. The labor policies are also being changed in order to cover up distortions in the systems such as lay-offs and merciless firings.
The Obama administration has further advocated different policies regarding outsourcing of work. As of today, the aim of the government is to reduce the total debts that are owed by public at large, and rectify the distortions in the economy. Increasing the GDP and exports, encouraging small businesses, and reducing debt-based production are some ambitious motives that are being put into force. As per Bush, it may seem that capitalism is the word to go, but by the grace of President Obama, we can say that accountability and improvements matter even more.