In the 16th and 17th centuries, Small American Economies, with the passage of time, grew itself from the marginally booming economies to the little but autonomous agriculture economy, which was the prime reason to form the United States of America. From its formation, the USA’s economy achieved several milestones by leaps and bounds and shaped itself as a big, integrated and industrialized economy. (Johansen, 1999)
The Federal Government of United States of America was formed in the 18th century. The United States of America is considered as the 1st modern federation of the Globe. The main offices of US federal Government is located in Washington, D.C. The word “Washington” is used usually as a metonym for the US government. In USA the president has the executive power, which is bestowed to him by public. The President is elected by the Electoral College for which each state including the District of Columbia is assigned the seats that is based upon its representation. The Presidency of United States is limited to maximum two terms, each term comprises of four years. (Archives, 2007)
USA is the largest economy of the world. According to CIA World Fact book “The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $47,400.” US supremacy has been wrinkled by the formation of the European Union common market, and by the speedy growth of China, which is forecasted to outdo the US within 30 years. (CIA, 2010)
The United States of America is the society of diverse people, diverse communities that belong to different races and have diversified ethnic backgrounds such as American Indians, Chinese, African Americans, Latinos, European Americans, etc. the numerous growth opportunities, advanced facilities, higher per capita income and luxurious life styles are the key factors that keep motivate the people from all over the world to set their dimension to the USA for lucrative opportunities and better living facilities. (Interceder, 2007)
The Economic System & Government Role
USA economic system is market based; the demand and supply forces are the factors that determine the prices in the USA. However, the American Government has its influence to develop and devise the monetary and fiscal policies that directly or indirectly affect on the economical factors and their driven outcomes such demand, supply and prices etc. Furthermore, the USA government keeps using their authorities to ensure the uninterrupted economical growth. Therefore, in spite the claim of market-based economy, the government intervention at some extent transformed the USA economy’s shape as a type of mixed economy. (Usembassy, 2010)
The Economic Indicators
The Economic indicators that are the barometers of any economy portray the situation, where the economy is standing and what will be the future prospects. There are several economic indicators such as Current Account, Balance of Trade, Inflation Rate, Jobless Rate and GDP, etc. However to be precise, following are the selected key indicators that portray the USA economy trends from January 2000 to the month.
All the above indicators are portraying the volatile trends except the US Stock Index that is somewhat portraying the upward trends. The positive point is that the remaining indicators are depicting the recovering trends after the dips but the chief economist and strategist, Mr. David Rosenberg, expressed his feelings which truly unveil the real picture of US economy. “Post bubble credit collapses are generally fraught with fragility and general economic weakness,…….. .I don't believe you can destroy trillions of dollars of wealth and believe we're back to normal." Source: (CNN Money, 2010)
In the connection of economic indicators, here it will be informative to discuss about the credit crunch. The credit crunch that is also known as credit crisis is decreasing in the availability of credit from the banks. A credit crisis normally involves a decline in the accessibility of credit independent because of a rise in the interest rates. In such type of situations, the association among credit availability and interest rates has totally altered such that either credit are less available, or there close down to be a obvious connection a credit availability and interest rates. Most of the times, a credit crunch is associated by a flight to quality by investors, as they prefer or search less risky investments.
The crises are normally caused by a decrease in the market prices of formerly over-inflated assets and lead to the financial crisis that outcomes from the price fall down. This can consequence in extensive bankruptcy for latecomer investors and entrepreneurs, as the previous price of inflated assets normally falls steeply. On the contrary, the liquidity crisis is started when a good business temporarily incapable of having the bridge financing. In credit crises scenario, it may be advisable to mark to market and if needed, sell into liquidation if the business capital affected is inadequate to endure the post-boom credit cycle phase. In the situation of a liquidity crisis, it may be advisable to try to access other credit lines, as growth opportunities may be present when the liquidity crisis is over.
An extended credit crisis is the reverse of cheap and plentiful lending practices. During the rising stage in the credit cycle, asset prices may experience the frantic competitive, inflation backed and leveraged bidding in an asset market that can cause a provisional price "bubble" to build up. And also augment the money supply and rises the economic activity that also further tends to raise the economic growth but temporarily. Frequently it is only in retrospect that entities in an economic bubble understand about the obvious collapsing point. In that regard,
There are several fallouts that arise because of the U.S. credit crisis. During 2007, there were several signs of lull economies and further market disturbance from a decreased growth prediction in Germany to caution about the vulnerability because of the Bank of England.
Joaquin Almunia, the European commissioner of Economic and Monetary Affairs said about the financial turmoil, "has spread a lack of confidence in the financial markets and beyond, in a manner and intensity that was not foreseeable" (Nytimes, 2010). Economists are worry that banks are suffering such huge losses that they will be pushed to decrease their lending. That would sluggish the economy as much as the loan and savings crisis did during the 1990s. In addition, The Bank of England stated that even though there have been fresh omen of recovery, the financial system remains vulnerable to further shocks.
The further fallout could be observed in that way that in October 2007, 28 percent of the banks had restricted their lending standards about the consumer loans and 2 percent had loosened out of them. During that period, as investors stated that U.S. mortgage loans’ defaults would source huge losses, global markets for a number of convoluted securities all but close down.
The mortgage direct losses will be approx 400 billion USD, according to the Goldman Sachs. If that were the degree of the sufferers, the financial system could easily faced it But because of the operation and method that financial institutions follow, the losses could spread extensively.
Financial institutions are obligatory to have capital so they can sit out losses. The mortgage losses were reducing into their capital and could source a proportionate decrease equal to the landed amount. Having into account that "multiplier" outcome, the mortgage problems could be managed by 2 trillion USD the credit on hand to businesses and consumers. At that time it was predication that if banks harshly restrain the lending, the condition could reflect that of almost 20 years ago, when bad loans tend to huge losses by loans and savings. The credit crises is the key learning lesson that one must be cautious if any entity invite to invest and promise about the big return without any risk. (Realestateresearch & Timesonline, 2010)
As far as the major industries are concerned, USA primary sector comprises of mining of natural resources and agriculture etc (The key natural resources of USA are Coal, oil and timber). the manufacturing sector are the amalgam of Aerospace manufacturing, Consumer electronics, Steel production, Automobile industry and Telecommunications, etc. while the service sector are the combination of Engineering and management services (including consulting), Personal services (including dry cleaning, tax preparation, and hair cutting), Healthcare, Motion pictures (Walt Disney etc), Amusements and recreation, Some type of agricultural services (landscaping and horticulture), Hotels and other places of lodging etc.
One thing that is inevitable to be discussed is that, natural resources are the key catalyst and key deriver of any economy. The key natural resources of USA are Coal, oil and timber. Surprisingly, the key source of energy/electricity is the fossil fuel that is the expensive way but the interesting point is that it will take a long time for any other country to follow Brazil, where ethanol already used 40% as fuel by automobiles. Besides that no any other country can compete the distribution network of Brazil, in Short-term ethanol will be typically a stabilizer to fuel not the main element. Brazil now produces 18 billion liters of ethanol per year, out which it exports 4 billion liters, that is over half of global exports. By 2013, utilization of ethanol in Brazil is expected to twice and international ethanol trade could be rises by 25-fold till 2020.
“If these calculations are correct, Brazil will need $90 billion of investment in new mills, plus $2 billion for pipelines, railways and storage. It already has 357 mills and is planning another 136 at a cost of $14.5 billion, according to Datagro, an industry consultancy. The investors are mostly Brazilian, but also include Louis Dreyfus and Tereos of France and Cargill of the United States. If anything there is an excess of enthusiasm. A lot of money is chasing too few opportunities, worries” (Economist, 2007)
Moreover, the importance of Brazilian natural resources could be analyzed in such a way that, if Brazil vanished from the earth, the rest of world would most likely miss its Amazon rainforest that is one of the world’s principal carbon dioxide’s reservoirs, the prime greenhouse gas as well as a rain factory for whole South American region and a key catalyst of the global weather. (Economist, 2007)
In that connection, The United States stressed on generating most of its ethanol from locally-grown maize but it is comparatively more expensive than Brazil’s cane-based ethanol and burns up almost seven times additional fossil fuel per unit of power produced.
According to the BNDES (national development bank) expressed that there was no wide-ranging shift in production to those industries that are based upon natural-resources. Another belated realization that fossil fuels overheat the earth, are managed by dodgy regimes and cost too much. In January USA President George Bush announced an USA version of “Proálcool”. He wanted to cut petrol utilization by 1/5th and has since done an agreement with President Lula to increase production and utilization of ethanol globally.
The purpose to include the Brazil and its ethanol based activities is to strengthen the argument that natural resources are the catalysts in making the investment decisions and to develop or not to develop the relations with different nations. In other words, natural resources are the major player to shape the world and its multicultural economies. If these natural resources are financed, value added and developed properly, the prosperity and the economical sustainability is guaranteed as one can see the wealth of middle-east. (Economist, 2007)
US economy is facing the challenges and is struggling to recover its economical crises but the fact and figures are describing another story. The USA economical data is representing the sensitive situation and indicating the double-dip recession that is going to be faced by the USA economy.
As per the analyses the USA government failed to control their debts, the restrictions on the credit limit by the bank, a gigantic financial crisis in the European countries are all the sign of upcoming financial crises. Tom Donohue, the President of U.S. Chamber of Commerce also warned about the upcoming double dip recession, he expressed his concern about the situation in his speech at Chamber’s Outlook 2010 that: “Congress, the administration and states must recognize that our weak economy simply could not sustain all the new taxes, regulations and mandates now under consideration. It’s a sure-fire recipe for a double-dip recession, or worse”. (The Hill, 2010)
Despite official and professional comments about the upcoming double dip recession, there is also another viewpoint that is important to be considered. As per this optimistic viewpoint, this decline of overall economic indicators including GDP (as shown on the above figures) is the bounce back effect after touching the lowest levels. Furthermore, the current zigzag or mixed trend of different economic indicators could be considered as the ray of hope about the future economic growth. Therefore, the above discussion is concluding one thing that is ultimately considerable, in spite of the alarming statements from the professional; the trends of different economic indicators are also showing a mix trend and projecting the recovery in future on the basis of bounce back phenomenon. It is another debate that in which pace it will be happened; slow, moderate or fast.