The U.S Economic Crisis

After US experienced Great Depression in year 1929, today US is experiencing another huge economic crisis started year 2007 according to National Bureau of Economic Research, a private group of leading economists charged with dating the start and end of economic downturns. Typically it takes a longer period of time to determine when was the recession began because the group need to consider the final reading associated with the economic crisis. The NBER said that the decline in the labor market throughout 2008 was one key reason why it decided to state that the recession began at year 2007. As a result US economy gradually declines; big financial company declares bankruptcy. Bank losses result in a reduction in bank capital, which in turn requires a reduction in bank lending (a credit crunch), in order to maintain acceptable loan to capital ratios.

Also as a result rate of profit in US declines. Government policies have affected the particular combination of unemployment and inflation at particular times, but nevertheless the fundamental cause of both of these “twin evils” has been the decline in the rate of profit.

Estimates of losses on mortgages keep increasing, and many are now predicting losses of $1 trillion or more, because since 2006, housing stops to increase and decline starting year 2007. Other than mortgages, other loans such as consumer loans (credit cards, etc.), commercial real estate, corporate junk bonds, and other types of loans (e.g. credit default swaps) also occurring losses.

Moreover, consumer spending will depresses due to following factors: decreasing household wealth; the end of mortgage equity withdrawals (which were very significant in the recent boom); and declining jobs and incomes. As a result, all in all, this period shapes a very severe recession.

The following are some effects caused by the recession:

Trade Deficit

The trade deficit that America experiencing for the last 3 years have rose to the highest level this June. It has risen to 4.4 pent as exports fell to their lowest level in more than two years. Exports dropped to 2.3 percent as well as imports which dropped to 0.8 percent. The cause of the decline in imposts was due to the falling cost of crude oil products. American manufactures have been alarmed by the decline in exports since they have been one of the responsible for the economic growth in months past. The 12.2 percent increase in trade deficit with the European Union is the largest trade imbalance America has held with the EU since 2008 while trade deficit with Japan rose to 53 percent. The 6.8 percent increase in trade deficit in China has made a negative impact on America. The deficit has lead to massive jobs losses and the offshoring of entire manufacturing operations. Overall, America’s trade deficit on the year is 15.3 percent to $576.6 billion.

The downgrade of US creditworthiness

China’s official news agency had stated that the U.S government’s good old days are finally gone. China, being America’s largest foreign creditor, seemed dismayed at the current America’s credit worthiness rating. The America’s new credit rating is a history. Standard & Poor’s, one of three main credit rating agencies, decided to downgrade America’s credit worthiness from AAA to AA+. It was the first time that the country has faced a downgrade. According to S & P the cause of the downgrade is the Gridlock in Washington. They have mentioned that the America’s governance and policymaking is becoming less stable, less effective, and less predictable than what everyone previously believed. Democrats put the blame for the downgrade on the tea party. Many Tea Party Republicans in the house rejected the deal of the Congressional leaders and the White House about the $4 trillion cut in spending and institution of entitlement reform. They have rejected that deal because it included revenue increases, a position that did not sit well with the credit rating agency. Meanwhile, Republicans sought to blame the president.

Return of the Double-Dip Recession

The rose in GDP has been driven by financial institutions and the consumption of imported goods and services. Another factor that contributed to the growth of GDP is the consumer economy wherein Americans are consuming nearly as many imports today as they have been consuming every year for the last decade. Despite the pretty impressive current GDP figure, the growth has not created job opportunities and somehow increase the income of those currently employed which makes the GDP meaningless in the entire economy. Recession still continues and its indicators are very visible: Unemployment is still above 9 percent, underemployment still hovers at 20 percent, wages are still declining, inflation is still a problem and living costs continue to rise above the inflation rate.

Report Shows Middle Class Hurt Most by Recession

The recession has created a negative impact to the Americans especially those who belong to the middle class. Based on the recent report released by the National Employment Law Project, all groups suffered during the great recession but the mid wage workers suffered the most. The most striking part of the report has to do with where the jobs that are being created fall on the wage scale. While the job losses are being absorbed by the mid wage group, the job growth has been focused to the lower wage category. Low paying positions are growing whereas good paying jobs continue to suffer. The report has also mentioned the acceleration of the decline in the average wages of lower wage workers. It is said that the failed trade policies and broken tax structure were the reasons of the presence of these phenomena.

The following are possible solutions for the U.S economic crisis:

The strategy of inflation, i.e., of increasing prices at a faster rate, which reduced real wages, or at least avoided increases in real wages, so that all the benefits of increasing productivity in recent decades have gone to higher profit.

Another widespread strategy has been to cut back on health insurance and retirement pension benefits.
Another very common strategy to increase the rate of profit has been to make workers work harder and faster on the job; in other words, enforcing a “speedup.” One common business strategy has been “downsizing,” i.e., lay off 10–20 percent of a firm’s employees and then require the remaining workers to do the work of the laid-off workers.

A more recent strategy has been to use bankruptcy as a way to cut wages and benefits drastically. Another increasingly important strategy used by capitalists to reduce wage costs has been to move their production operations to low-wage areas around the world.

The strategies used by capitalist enterprises to increase their rates of profit in recent decades have in general caused great suffering for many workers—higher unemployment and higher inflation, lower living standards, and increased insecurity and stress and exhaustion on the job.