What is Next for the American Economy?

Last week, Barack Obama has won himself another four years as President of the United States of America. In the last several months, Mitt Romney and Barack Obama have been going head to head in a tussle for the reins to America. So what happens next? As the feeling of celebration begins to simmer down and the champagne stops popping, it is time for Obama to continue his work on trying to get America’s economy back onto the road to recovery.

The output of goods and services produced by labour and property located in the United States decreased at an annual rate of approximately 6% in the fourth quarter of 2008 and first quarter of 2009, versus activity in the year-ago periods as commodity prices sky rocketed. The price of oil nearly tripled from $50 to $147 from late 2007 to 2008 before plummeting again as the recession began to take a stranglehold on the economy. The stark increase in similar raw materials (such as copper and nickel) resulted in house prices rising dramatically and, in turn, causing the $600 million bankruptcy filing by Lehman Brothers in 2008 as they had significant amounts of money invested in housing related assets. Unemployment rose to 10.1% by October 2009, its highest rates since 1983, and is presently at 8%, higher than when Obama took office- a point Romney was keen to reiterate numerous times in his televised debates with Obama. So what has been done to try aid America’s recovery?

Obama has attempted to right the wrongs of President George Bush with more government intervention in America’s strongly free market economy. Last year the US Federal Reserve bought over 70% of all US debt issuance. During this period, incidentally, there was a decrease in ‘debt buying’ from both China and Russia. This is a big problem as hyperinflation unfolds when a country loses credibility in the global markets. The fact that other countries are increasingly shunning US Treasuries is the first step in that direction. Moreover, to worsen the blow to Obama’s economic credibility, the US debt to GDP ratio rose to over 100% which is the worst debt ratio since World War 2. This policy of using debt to finance various programs and overspend seems to show no indication of changing anytime soon. We must also remember that it was Obama who appointed Ben Bernanke as Fed Chairman.

It is suggested that Obama will attempt to take America over what many are branding the ‘fiscal cliff’, the belief that there will be around $650bn of spending cuts, tax rises and other measures which could be introduced in January. What is widely expected is for the American dollar to weaken in value. This would not come as good news for the Eurozone because most economists suggest the Eurozone will require a weak currency to stimulate economic growth with foreign trade. There is also hope that taxes for households earning $250,000 a year in an effort to raise $50bn. However, a Republican controlled congress will seek to prevent this and any other policy that will risk seeing America into recession. No doubt the next couple of months will prove to be a difficult period of time for Barack Obama and Members of Congress who will have to find a way to work together for a greater good rather than protecting their own ideologies.

Contributed by Alex Williams-Baffoe

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