United States Economy since November 2004 to November 2007 Essay Example for Free

United States Economy since November 2004 to November 2007 Essay The distinction of the United States as the only remaining super power in the world may not only apply in their military force but in their economic might as well. But historically, according Bernard Baumohl, it was only during the early 1970s that the U. S economy was open to international market following the collapse of the Bretton Woods Agreement, which was intended to establish a stable foreign exchange system. As a result, Baumohl said â€Å"currency values in the world financial market began to float freely, sometimes moving wildly up and down† (p. 240). The immediate impact of this is that the world trade grew faster than ever. Baumohl point out that this development resulted to the influx of cheaper foreign goods which were often of better quality and â€Å"increasingly found their way into the U. S market and started to pose serious competition for US producers† (p. 240). As this was the case, American companies responded by operating more efficiently, and lower their prices while also seeking new market overseas. Baumohl noted that since then, trade has evolved to become one of the most important forces shaping the US economy† (p. 240), the United States economy soared so high that in the short span of time they became one of the most if not the wealthiest economy in the world. Price stability in the United States As the US economy soar high in the international arena and the purchasing power of the US dollar remains strong against the euro, the US has maintained a stable price. The OECD economic outlook noted that inflation in the US has remained with in a desirable range through the help of the long-term household survey measures. Inflation, the OECD noted â€Å"have remained well anchored, even if indexed-bond have drifted somewhat† (p. 24). The article point out that this stability has helped â€Å"limit the second-round effects from the oil price and exchange rate shocks, but it is all the more important that further policy action validate the still serene expectation† (p. 24) In the OECD Economic Surveys United States 2004 article, it noted that in price stability, firmly anchored long term inflation expectations are especially important , not only to maintain public confidence in the durability of low inflation achieved over the past two decades, but also to limit the risk of a potentially self- reinforcing deflationary spiral in the face of hypothetical negative shock (p. 46). Unemployment . Nazimudeen Saleem stated that unemployment in the US soared to a record high in 2004 at 5. 6% reaching over the threshold of 5%. An internet article from entitled Unemployment noted that in April 2007 unemployed adult men stands at 4. 0 percent while adult women, at 3. 8 percent, Caucasians, 3. 9; Hispanic (all races, at 5. 4 percent; African American, 8. 2 percent, and teenagers with the highest number of unemployed at 15. 3 percent. Amadeo noted that the weakest year-by-year employment was 1. 2% in 2004 indicating a trend of decline since 2006. She point out that unemployment is not worsening at all, but it indicate declining trend as unemployment was up at 4. 7% from 4. 4% in October and only slightly up by one percent in May 2007 at 4. 5 percent. Indeed there is a trend of slight decline in the unemployment rate from 2004 to 2007. Healthy Economic Growth In the report to congress on International Economic and Exchange rate policies in December 2006, it cited that the United States has made substantial progress in reducing the federal fiscal deficit from 3. 6 percent of gross Domestic Product in 2004 to 1. 9 percent in fiscal year 2006 Gross Domestic Product, posting an improvement of 1. 7 percent. The report also cited that the United States economy has experienced continuous healthy economic growth in 2005 up to the third quarter of 2006, but during the last quarter economic growth slowed down up to the most recent quarter. From the first quarter of 2004, Gross domestic product or GDP stands at 3. 9% and slightly up by one percent during the second quarter of the same year at four percent. But it slowed down during the third and fourth quarter registering only 3. 1% and 2. 6 percent respectively. However during the first quarter of 2005 GDP was up again jumping to 3. 4% but down by 1% at 3. 3% on the next quarter. The third quarter of 2005 posted a highest growth rate since the first quarter of 2004, at 4. 2 but drastically fell to 1. 8 percent during the last quarter. According to the report of the U. S. Economic Recovery and resurgence as of march 2007, economic analysis of the GDP for the last quarter of 2006 indicates that growth rate has accelerated from 2. 0 percent on an annual basis to 2. 5 percent. The report further cited that although there were difficulties in GDP during the first, second, and third quarter of 2006 but the economy still registered a growth rate of 3. 4 percent, which is still in line with the real growth rates in past few years. According to an article entitled United States Economy 2007, GDP growth rate was under girded by the significant gains in labor productivity that despite of the damage caused by hurricane Katrina it had caused only a minor impact on overall GDP, which stand in 2005. Even the soaring oil price in 2005 to 2006 had only limited impact though it threatened inflation and unemployment. The Purchasing Power Parity GDP in2006 stands at $12. 98 trillion while official exchange rate GDP is $13. 22 trillion, Per Capita GDP $43,500. The graph at the bottom page of this paper shows the economic performance of the United States economy pertaining to the discussion above (see Figure 1). Healthy Balance of Payment (Export/ Import) Francisco Carrada-Bravo pointed out that the best way to learn about the country’s balance of payments statistics is to â€Å"take a careful look at them for a particular period† (p. 110). Bravo noted that the balance of payments of the United States, and other balance of payments from any country in the world, encompasses several main accounts†¦Ã¢â‚¬  (p. 110). Bravo explained that the value of current account is determined, at large extent by the result of trade, service, and transfer of sub accounts. Bravo further explained that â€Å"the United States shows a current account surplus, when the sale of US goods and services to the rest of the world exceeds the US acquisition of these items from other countries. How ever, the United States has a deficit in the capital account when US corporations invest abroad in excess of what foreign multinationals invest in the United States. Translating the above explanation to the US balanced payment, Export promotion, which is managed by the Ministry of Finance, provides subsidies in forms of interest rate support, direct financial support, and export rewards and bonuses. In a report made by OECD staff, the total number of firms of exporting goods was 238,284. Out of the total number of firms, 97% percent of that is SME or small-medium enterprise (p. 365). The success of this export sector is through the assistance of government since it has assistance programs and overseas trade offices to help them their small business with â€Å"market research and local assistance (p. 365). Another factor for steady rising of the economy is a policy issued on November 19, 2004, which â€Å"blocked state and local governments from taxing connections that link consumers to the internet for the next three years (OECD, p. 367). This is because the Federal government believed that e-commerce is â€Å"a growth engine for exports and international expansion. Figure 2 of this paper (see bottom page) explains the balance of payment, which includes details on American economy that includes the year 2004, 2005, and 2006. Main Macro economic Policies by the United States John Atlee in his executive summary of the Macro Economic Agenda Recovery Now and Democratic Comeback 2004 outlined macro economic policies that the US government used during the last three years. First is the Analytical Policy Focus, which features an Adopt a growth trend standard of reference for economic policy and analysis. This policy also denies economic recession instead suggest that the country is just experiencing a mild recession. Significant recovery is yet to begin and maintaining structurally balanced growth with unemployment below 4% should be the aim of this policy with reference fro the Full Employment and Balanced Growth Act of 1978. Another macro economic policy, which the United States government employed during the last three years, is the Budget and Management. John Atlee noted that Bush economic policy is quite weak in its budget, and that this budget vulnerability must be understandable to the voters as well as to the investors who are demanding transparency in government. This policy also instructs that deficit projections and budget should not be based on ever changing and unreliable economic forecast. Furthermore it also to keep deficit close to zero, and eliminate economic forecasts, which is unreliable and ever changing. The government also used Social Security policy making it financially sound to effectively discredit the privatization campaign as this privatization mover promulgates falsehoods perhaps, against the capacity of the government. Taking Social Security (SS) can help finance non-SS deficits. Monetary Policy is one of the key macro economic policies of the government as this is where everything can be fluid. This policy is to recognize the creation of checkable-deposit money by bank, which finances GDP growth through eighteen to one monetary multiplier effect. The policy also aims to eradicate the pretense of interest rate control by increasing reserve requirements and direct control to the Fed. The government also used the Systematic Coordination of Monetary and Fiscal Policy over the last three years. Atlee reports that Fiscal policy is separate from budget management as it is mainly concerned with the over all effect on the economy of the budget. In Atlee’s executive summary of these macro economic policies, he pointed out that the main engine of recovery is the reformed monetary policy, which is facilitated by flexible fiscal policy. Tax Policy is another very important measure that the Bush government had utilized to encourage new businesses in the form of entrepreneurial incentives to new high tech industries and small businesses. This incentive is an exemption from the undistributed profit tax and some measures to avoid unsustainable and excessive stock price increases. These policies aim to sustain the momentum of economic growth experienced by the country since 2004 to 2007. Demand Policy and Supply Side Policy Demand policy is a government policy based on the extremity of the need of a certain sector of the government or society such as the labor sector or the energy sector. Demand policies in the labor sector is increasing the number of quality jobs Mark Rank noted that this policy approach â€Å"has assumed that the labor market by itself will generate enough jobs to meet the needs of those seeking work—that, as the supply of labor increases, the labor market will in turn respond by generating more jobs to meet the demand† (p 204). Thus, Rank suggested various labor demand policies are needed in order to generate a more â€Å"robust rate of job growth† (p. 204) Egbert Tellegen and Maarten Wolsink pointed out that supply-side policy and demand side management â€Å"require widely different abilities from the organization† (p. 184) They contend that the main challenge of supply-side management is â€Å"to develop and manage facilities of the highest technical quality at the lowest possible costs in order to fulfill customers’ needs under all circumstances† (p. 184). Conclusion/Summary American economy since November 2004 to November 2007 despite of ups and downs in the economic performance, yet it remained a steadily growing economy. The 2004 saw its drastic economic decline but it was able to rebound during the first quarter of 2005 to the third quarter of 2006; registering at steady GDP growth rate of three to four percent. Unemployment was also declining as more jobs opportunity is created each year. In general, the United States economy are performing strong up to the recent quarter of 2007 despite of their current internal debt of about 1. 3 trillion and about ten billion dollars in external debt. They remained economically powerful despite the current depreciation of the dollar against Euro and other foreign currencies. Moreover, US economy has purchasing power of about 12. 98 trillion while official exchange rate GDP is $13. 22 trillion, Per Capita GDP $43,500, which continuously grows in the preceding year.