The current economic crisis has been unanimously and officially declared the worst since the great depression period of the 1930s by Wall Street, media, economists, other scholars and the government. This financial crisis has busted several highly reputed financial institutions of America, like Lehman brothers, Washington mutual fund, AIG and Merrill lynch. Some of the financial institutions have declared their bankruptcy while others are comforted by the federal government and received heavy bail out packages. The story of other sectors like manufacturing, retail, consumer goods and automobile is not much different and they are also facing the heat. If we talk about the retail sector, the situation is worse than the murky and more or less this sector is held responsible by economists for this huge economic crisis.
The situation has affected the Americans badly and it is reflected in their lifestyle. Many Americans have been fired by the companies and after being jobless, these people are unable to pay their loans. The situation seems dour and has affected the America in a way that the country has no choice but to restraint several expenses and seriously look into the issue to find some solutions. In this paper we would discuss the several aspects of American economic crisis and also the probable remedies to overcome the situation.
There are a number of opinions on the factors behind the crisis of the American economy. Different people have their views on the crisis, according to theses views, the following factors have played the roles in the economic crisis of America:-
A. Declination in profit rate – there are several reasons behind this crisis and looking back in the past decades can help us in understanding the crisis and its reasons. The profit rate of the American economy was declined by almost fifty percent in the recent decades and it led to higher inflation rate in the economy. This situation further caused lower investments in business sectors which resulted as slower economic growth and higher unemployment. The whole episode affected negatively the growth of the American economy.
B. Real estate bubble – bubbles started in real estate in the year 2006 and these bubbles were blown up by 2008. The value of the housing sector was decreased by almost twenty five percent in the year 2008 as compared to its value in 2006. It severely affected the borrowers, their mortgage rates were reset but and they were unable to pay their loans which made them defaulters. The dream of owning a home proved to be a nightmare for Americans while for the same reason, banks suffered the loss of billions as people were unable to pay the debts. Several banks were crumbled and unable to operate further without government assistance.
C. Credit leverage in the market- since Federal Reserve reduced the fund rates, American banks were providing loans at very low interest rates in the past few years and this encouraged people to take bigger loans for their house and other purposes. Banks and other investors also arranged money from different sources on condition that they will return the amount with interest once they make money from the boom of the housing sector. By the year 2008 due to sudden deleveraging policies, the banks and investors realized that they have risked their total borrowed capital but it was too late and they became bankrupt.
D. Explosion in commodities- rampant increase in prices of essential commodities worsened the situation and led towards an economic crisis. This increase in the prices was observed in all the commodities including oil and metals. Oil prices were uncontrollable and almost tripled within a year. Other commodities like copper, nickel, steel were making new heights and their price was also beyond control.
E. Other expenses – Americans spend enormous money on wars, they fight on different fronts at one time. These expensive wars have cost billions and would have used somewhere else if American were not involved in wars. Apart from the wars they always are on different peace missions in several parts of world. All these affairs are very costly and need lots of money of taxpayers.
The economic crisis has compelled the government of America to pore over their economic policies, to take some serious steps to embark upon this crisis and to prevent any such economic crisis in the future. Some steps taken towards resolving the crisis are as follows:-
A. Steps taken by congress- in the beginning of the year 2008, American congress passed a stimulus bill worth $168 billion. This package was to provide relief in taxes for public and in the business sector. Due to this step people sensed some relief but it was not any concrete step and was intended to relieve people instantly, which it did. Another stimulus package of almost $ 900 billion was planned by the congress to benefit the country in a larger context and the stress was given on the employment, education, health and other essential services. Congress also assured the Americans that they are thinking to announce more packages after analyzing the condition and according to the circumstances. This proved to become more effective because it was really a huge amount of money and the condition of the people was improved but policymakers were aware of the fact that these steps are not going to help in the long term and certain concrete steps are required for the American economy.
B. Steps taken by the Federal Reserve of America- Federal Reserve made a number of policies to improve the economic condition of the country. These steps were meant to benefit the larger section of the society and also financial institutions of America. For the first time federal reserve offered loans to the investment bankers and helped several other private financial institutions. The Federal Reserve helped JPMorgan, Lehman Brothers and AIG and other institutions from becoming bankrupt. These policies along with others helped the economic condition in improving temporarily but these steps were not enough to strengthen the fundamentals of the American economy. In long term Federal Reserve has to decide many things, make several policies in respect to the economy of America.
Conclusion
After analyzing several factors, policies and situations we can conclude saying that though some temporary reliefs are visible but the worst is not over. Government and policy makers of the country have to take firm steps to improve the economic situation of America and prevent such a crisis in future. This crisis has caused big pain among Americans and the country should learn all the teachings from the current economic crisis of America.
References
Castells, M. (1980). The economic crisis and American society. New Jersey: Princeton University Press.
Freedman, J. (2010). The U.S. Economic Crisis. New York: The Rosen Publishing Group, Inc.
Larry Elliott, Phillip Inman and Graeme Wearden. (2011, July 29). Theguardian. Retrieved November 4, 2011, from www.guardian.co.uk: http://www.guardian.co.uk/business/2011/jul/28/debt-crisis-wall-street-warns-white-house
