Economy in US-Causes & Projections

By Scott Lee

The current economic recession in the US was predicted by many, but few paid attention. Now that even the Government has been forced to admit as much, many are asking what could have caused it.

Years after Free trade agreements have been implemented, we can now see the cost. The US economy has shed millions manufacturing and non manufacturing of jobs over the last 10 years. An economy once known as a great manufacturing nation, has been turned into a predominately service based economy. With an ever increasing number of those jobs now being exported. This along with the influx of millions of illegal immigrants to the US, has made it increasingly difficult for many Americans to replace the jobs they've lost.

Another contributing factor was the Federal Reserves policy under Alan Greenspan of creating artificially low interest rates from 2002-2006 and continuing under Ben Bernake . Low interest rates along with lax lending policy's enabled many Americans who normally would not have qualified for home loans to receive them. These loans have become known as sub-prime loans that were then packaged as Credit Default Swaps (CDS) and/or legitimate AAA rated investments. These over rated investments were then sold to foreign investors. Now that many sub-prime loans are in default, mortgage lenders and financial institutions have requested Government assistance in order to avoid bankruptcy. These risky investments have also aided in this economic crisis becoming a global one. This has even affected the insurance industry with AIG being the prime issuer of Private Mortgage Insurance (PMI) who also has requested $85 billion in Govt. loans.

This is just a few contributing factors as to why the economy is now mired in a severe recession. Many top economist are still warning the worst maybe yet to come. With the retail industry just completing its worst shopping season in recent memory. Several retail chains will likely be forced to close 1000's of less profitable outlets after the first of the year as the economy continues to shed job.

Had the current administration and congress chosen a more logical solution, similar to that of Australia. Who upon passing a $10 billion bailout of its own. Are actually giving the bailout cash to its citizens. Unlike the Federal Reserve who is acting without oversite in hopes the trickle down theory is the correct solution. With banks apperantly hording the bailout cash and not freeing up the credit markets. The bailout as structured will have little affect on the economy as a whole.

Had the Government bailed out Main street instead of Wall Street. The economy may well be on the road to recovery. If each citizen or married person would have received a check of approximately $25,000. That money would have been deposited into the banks, that would have freed up the credit markets. And as that money was spent it would have also boosted the economy.

However, this administration seems to have embarked on a path similar to that which lead to recession and economic collapse in Japan in the 1980's and Argentina in 2000. Who will be next to get in line for a bailout and when will enough be enough. This appears to have become an attempt to nationalize and consolidate industry's at the taxpayers expense.

Comments

kari said…
Great article. You have a firm grasp on the situation and see the writing on the wall for the US
Anonymous said…
Overall, the article makes a lot of good points about the sources of the current recession. One thing that does not belong is the reference to free trade.

The "cost" of free trade has been increased prosperity for all countries involved. It's simple economics, and it surprises me that so many people don't understand it. While certainly some jobs have been lost to free trade, more have been created a result.

More than that is how ridiculous the notion is that free trade contributed to the current recession. The economic troubles of today are a result of poor federal fiscal policy, lax lending standards at banks, opaque bundling/repackaging of bad mortgages and greedy people who tried to buy more house than they can afford. Free trade has nothing to do with it.