17 October 2016 by Sigrid Brevik Wangsness The US Economy II 17 October 2016 by Sigrid Brevik Wangsness

IV.The U.S. Economy Today (2016) The largest economy in the world with a major impact on the global economy Until October 2008 an economic superpower – did the financial crisis change that? A significant characteristic of the US economy is its resilience, i.e. its ability to bounce back after slowdowns. Has this happened again?  

What went wrong in 2008? The Major Causes of the Financial Crisis Collapse of the housing market The property bubble burst: House prices dropped dramatically Sub-prime loans = risky loans (mortgage loans for borrowers with a poor credit history)

The Major Causes of the Financial Crisis: The banking crisis Banks had granted too many risky loans Bad debts – huge losses Complicated financial instruments: MBSs (mortgage-backed securities) CDOs (collateralized debt obligations) “Credit crunch”

The Crisis of Credit Vocabulary To default Treasury bills Leverage Interest Homeowners Broker Mortgage lender AAA rating Investment banker Prices plummet Credit Default Swap Foreclose

The Major Causes of the Financial Crisis: Speculation and excessive risks on the stock markets Lack of trust Free fall of share prices Insufficient regulatory system Deregulation encouraged “gambling”. Repeal (official end) of Glass-Steagall Act in 1999.

The Major Causes of the Financial Crisis: The Federal Reserve System (the Fed) (= the US central bank) Too low interest for too long? Too easy to borrow from the Fed? Did it therefore indirectly encourage speculation?

Attempts at Solving the Crisis: US government intervention in the economy Rescue (bail-out) packages The role of the Federal Reserve System "Head of the Fed” at the time: Ben Bernanke “Quantitative easing”

Attempts at Solving the Crisis: Part –nationalization of American banks Cooperation between major economies: Summits (G20), co-ordinated efforts The IMF

Does history repeat itself?

Robert Reich, Professor at Berkely: Two peak years for income concentration

Problems in the US Economy National Debt   USD 19.7 trillion ($19,698,178,798,454.78). Trade Deficit  Current-account balance: -$488bn (Q2) -2.6% of GDP in 2016 (forecast) Budget Deficit Budget balance: -3.2% of GDP in 2016 (forecast) Income inequality The gap is widening

Economic Indicators (October 2016) GDP: +1.3% growth in Q2, 2016   Forecast for 2016: +1.5% Inflation: +1.1% (Aug. 2016) Forecast for 2016: +1.3% Unemployment: 4.9% (Aug. 2016)

V. Changes in the US Labour Market (See article in the Comp.) The Primary Sector The Secondary Sector  The Tertiary Sector  

VI. US Financial Institutions The Fed Head of the Fed”: Janet Yellen Organization Appointment Key powers: Monetary Policy Banking Regulations Wall Street NYSE, AMEX, NASDAQ Banks, insurance companies, rating agencies, brokers, asset managers etc.

President Obama: «The Way Ahead» Four major structural challenges: 1. Boosting productivity growth 2. Combating rising inequality 3. Ensuring that everyone who wants a job can get one 4. Building a resilient economy that is primed for future growth The Economist, October 8th, 2016