Economy of US Essay

electric chair George W. pubic hair, in a speech before his stinting team on rattling(a) 8, 2007 talked slightly the nations expand parsimoniousness. chairperson scrub said I just finished a productive meeting with members of my economic team. We discussed our thriving rescue and what we need to do to keep it that means. We c argon a serve up or so whether our fellow citizens are working, and whether or not theyve got bullion in their pockets to save, spend, or invest as they see fit. We talked about Americas role in the global prudence. (President Bush Meets) Looking at head-nigh major economic indicators, the Presidents claim on the fruit of the economy has some sense.For this paper, the following indicators will be discussed the gross domesticated Product which measures overall economic productivity of the nation fanfare enumerate which measures the rise in the general level of footings Un practice or function rate which reflects the number of people wi th jobs and Balance of Payments which reflect the relationship between exports and imports. The unite States Government uses two sets of tools that affect the American thriftiness. These tools are financial constitution and Fiscal insurance. The low gear one deals with how the regimen controls the supply of silver and therefore the general stability of prices.The second one deals with government expenditures specifically how oft the government is earning ( imposees and r dismantleues) and where will it spend the money (budget). pecuniary insurance is kill by the national harbor System through its mount of Governors firearm Fiscal insurance is carried out by Exe cauteriseive branch with or without the support of relation. The U. S. Economy in Review The U. S. Economy is the largest and most all-powerful economy in the world. By the end of the third quarter of 2007 its Gross domestic Product was close to $14 Trillion.Starting in 2004, the U. S. economy was hit by s ignificant events that tested its resiliency. The aftermath of the September 11 terrorist attacks led to major shifts in national resources to fight global terrorism. The pricey war in Iraq led to a more costly U. S. ancestry in Saddam Husseins democracy. Huge investments were made by the orbit for the war investment in budget, resources and human capital. During the comparable period, Hurricane Katrina caused huge damage in the Gulf Coast. Resources were diverted to aid those who suffered from the vivid calamity. crude prices soared between 2005 and 2006 also threatening the economy. Despite these setbacks, the U. S. economy posted well growth during the period 2004-2007. Gross Domestic Product The U. S. Gross Domestic Product recorded growth place of 2. 9 portion in 2004, 3. 2 share in 2005 and 2006 and a leap to 4. 2 percent at the end of the third quarter of 2007. gibe to the Bureau of economical Accounts, the increase in GDP primarily reflected increases in consu mer spending, investment in equipment and software, federal government spending, and residential fixed investment.The President, in his State of the Economy actors line in January 2007, highlighted the strong and dynamic economy, and discussed the challenges faced in care the economy increase. The President stressed that the U. S. economy is resilient and responsive, adding more than 8. 3 million jobs since 2003 despite numerous challenges including a recession, corporate scandals, the 9/11 attacks, and the worst natural disaster in American history. Inflation Inflation is generally reflected through the rise and fall in the Consumer Price Index. consumer price index measures the average change over time in the prices paid by consumers for a market basket of consumer goods and services. During the period 2004 to 2006, CPI rose at a manageable level indicating inflation is under control. No info was shown for 2007. In 2004 CPI rose 3. 3 percent over the anterior course of stu dy.In 2005, the rate was at 3. 4 percent and in 2006 it slowed slash to 2. 5 percent. The recent behavior of inflation shows it remains low and shelter and has minimal impact on the economy (U. S. CPI) Unemployment and Employment The number of dismissed persons was 7. 2 million in October 2007 according to the Bureau of Labor Statistics. A year earlier, the number of unemployed persons was 6. 7 million, and the jobless rate was 4. 4 percent. Also according to the BLS, total employment was at 146 million in October. Job gains occurred in professional and melodic line services, health care, and leisure and hospitality. Manufacturing employment continued to decline, and construction employment was microscopical changed. The employment-population ratio was at 62. 7 percent.The civilian exertion pass was at 153. million and the labor force participation rate was at 65. 9 percent. Balance of payment The countrys balance of payment specially the relationship between the countr ys exports and imports still show a deficit. The deficit decreased to $190. 8 billion in the second quarter of 2007 from $197. 1 billion in the first-year quarter. According to the Bureau of Economic Analysis, a decrease in net unilateral live transfers to foreigners and increases in the surpluses on services and on income more than accounted for the decrease.Monetary Policy The federal grant System, the independent U. S. substitution cashbox, manages the money supply and use of credit (monetary form _or_ system of government), while the president and Congress adjust federal spending and taxes ( monetary policy). The governments monetary policy is governed by the federal official leave System Board of Governors. The national taciturnitys monetary policy has stressed preventing rapid escalation of general price levels which usually leads to inflation. The Federal booking acts to slow economic expansion by reducing the money supply, thus elevator short-term recreate rates .When the economy is slowing downward too fast, or contracting, the Federal Reserve increases the money supply, thus lowering short-term interest rates. The most common personal manner it effects these changes in interest rates, called open-market operations, is by buying and selling government securities among a small group of major banks and bond dealers. A particularly tricky situation for monetary policy makers, called stagflation, occurs when the economy is slowing down and general price level (inflation) is rising too fast (U. S. Monetary Policy).The Federal Reserves recent monetary policy is towards memory the overall economy on an adjustment path where growth is hold back and sustainable. As Federal Reserve chairman Ben Bernanke mentioned in his Testimony ahead the perpetration on Financial Services, U. S. House of Representatives on July 18, 2007 At separately of its four meetings so far this year, the FOMC maintained its target for the federal coin rate at 5-1/4 p ercent, judging that the existing stance of policy was likely to be consistent with growth pass alongning near turn and inflation staying on a moderating path (Bernanke).Given these conditions, the Committee decided to leave its target for the federal funds rate unaltered at 5-1/4 percent. The Committee advance interpret in its policy statement that some inflation risks remained and that additional action would depend on changes in the outlook for both inflation and economic growth (Monetary Policy Report 6). According to Janet L. Yellen, President and Chief Executive Officer of the Federal Reserve Bank of San Francisco in her speech on The U. S. Economy and Monetary Policy, I think the current stance of policy is likely to nurse sustainable growth with a gradual ebbing of inflationary pressures (2).However, Yellen further stated that a sustained moderation in inflation pressures has nonetheless to be convincingly demonstrated (15). Policy Actions taken by the Federal Reserve The Federal Open Market Committee in its meetings on June 27 and 28 and voted to hold the federal funds rate, the Federal Reserves main policy tool, unchanged at 5? percent (Monetary Policy Report 6). At the time the report was made to Congress, the funds rate has been kept at that level for the last twelve months.According to the Committee, this decision would avoid exposing the economy to the risk of a recession, while, at the same time, hoping that this policy will produce enough slack in goods and labor markets to relieve inflationary stresses. This tutelage will enable the Federal Reserve to achieve its dual mandatelow and stable inflation and maximal sustainable employment. In the noncurrent year, then Federal Reserve Chairman Alan Greenspan wrapped up an eventful 18-year career Tues solar day with a final interest rate hike and cleared the way for his successor Bernanke to bring the abundant credit-tightening campaign to a close.Acting on Greenspans final day in office, Federal Reserve Board raised the benchmark all-night lending rate anformer(a) quarter-percentage point to 4. 5 percent, pushing up borrowing costs for consumers and businesses in their ongoing bid to keep a lid on growth and inflation (Wolk). In the months after that, the Board came up with a series of cuts in interest rates to address the prevailing economic condition. This balancing act is in line with the Federal Reserves responsibility of trying to maintain full employment (generally considered to be around 4 to 5 percent unemployment) while memory inflation low.One can imagine the risks and uncertainties involved in such(prenominal) act. Alan Greenspan once said, Policymakers often suck to act, or choose not to act, even though we may not fully understand the full cheat on of possible outcomes, let alone each possible outcomes likelihood. As a result, risk management often involves significant persuasion as we evaluate the risks of different events and the probability that our actions will alter those risks (Greenspan). . This excellent balancing act is done by using interest rates as a tool. When interest rates are low, capital is easier to acquire. leave unchecked, however, this leads to inflation.If interest rates are too high, however, the result can be a recession and, in extreme cases, deflation the result of which can be economically devastating. There are two ways as to how the Federal Reserve influences the direction of interest rates by raising or lowering the discount rate or by indirectly influencing the direction of the Federal funds rate. The discount rate is the interest rate banks are charged when they borrows funds overnight directly from one of the Federal Reserve Banks. The Federal funds rate is the rate that banks charge each other for overnight loans (U. S. Monetary Policy).Fiscal Policy When President George W. Bush first stepped into the Whitehouse in 2001 he promised several things to the American public. Among his list of p romises which was an ambitious $1. 3 trillion tax cut. President Bush promised that whoever pays taxes gets a tax break. campaign for his second term in office in 2004, President Bush promised to make tax cuts that were earlier adopted in 2001 permanent. In his August 8 speech the President said Real after-tax income has increased by an average of more than $3,400 per person since I took office. The President further stated Tax cuts let Americans keep their own money. It stimulates entrepreneurship. The President emphasized that he is against the plan to increase taxes and turn them into additional government programs and said We fatality the people to keep more of their own money because we understand that the American economy, entrepreneurs and small business owners are the ones who create jobs. However, there is a growing opposition to his fiscal policies. Some say these cuts were distributed disproportionately. Higher income tax payers got the biggest breaks they say as opp osed to lower income individuals.It is also important to note that during the first term of President Bush, federal spending increased by 26 percent. This seems to go in a different direction with the tax cut measures. On one hand tax cuts mean lesser taxation for the government, on the other, more money is needed as more money is being spent. It will not take a genius to enroll out that the tax cuts, and significant increases in spending will have effect on the budget deficits during the Bush organization. From a surplus of $127 one million million million when President Bush assumed office, the budget went to a deficit of $929 billion. proximo impacts of these fiscal policies have been also widely discussed. Shapiro and Friedman believe Over the conterminous 10 years, total tax-cut costs will equal $3. 9 trillion, range nearly $600 billion or 3. 3 percent of the economy in 2014 alone. The resulting higher deficits will slow forthcoming economic growth, saddle future generat ions with sizable interest payments, and leave the nation ill-prepared not only for the hideaway of baby boomers but also for responding to potential future crises from security matters to natural or environmental disasters the particulars of which are unknown today.Even Former President Clinton went on record to criticize President Bushs fiscal and tax policies Tax cuts are always popular, Clinton said. But about half(prenominal) of these tax cuts since 2001 have gone to people in my income group, the top 1 percent. Ive gotten four tax cuts. Now, what Americans need to understand is that that means every(prenominal) single day of the year, our government goes into the market and borrows money from other countries to pay Iraq, Afghanistan, Katrina and our tax cuts, Clinton added.We depend on Japan, China, the United Kingdom, Saudi Arabia and Korea primarily to fundamentally loan us money every day of the year to loom my tax cut and these conflicts and Katrina. I dont think it m akes both sense. I think its wrong (Stephanoupoulos, 2005). Former Federal Reserve Chairman Alan Greenspan also had a few words to say about President Bushs policies. Greenspan criticized President George W. Bush for pursuing an economic agenda driven by politics rather than sound policy, with little concern for future consequences (Benjamin. 2007).Greenspan was quoted as saying The Bush administration off-key out to be very different from the reincarnation of the track administration that I had imagined. Now, the political operation was far more dominant. (Benjamin 2007). Comparing past presidents and the current Chief Executive, Greenspan said Richard Nixon and Bill Clinton were the most intelligent Ford the most normal and likeable Ronald Reagan was the most devoted to free markets George H. W. Bush, the current presidents father, was very cordial. However, Greenspan saved his harshest criticism for Bush.Little apprise was placed on rigorous economic policy debate or the wei ghing of long-term consequences, he wrote. (Benjamin 2007). Still President Bush remains steadfast saying When people earn money, tax revenues go up. This year, tax revenues are expected to be $167 billion higher than last years, because the economy is growing. Growing tax revenues combined with spending restraint has helped us drive down the federal deficit, and we were able to do so without raising the taxes on the people who work, or without raising taxes on small business owners or farmers. Estimates show the deficit will drop to $205 billion this year.That is well below the average of the past 40 years as a percentage of our economy. (President Bush Meets) Conclusion Not too many believed that the U. S. economy can rebound so fast from the series of unfortunate events of 2004 to 2007. heretofore the number one economy in world has proven its resiliency and durability by weathering these storms. Much of the credit should go to the managers of the economy. The adoption of soun d policies and strategies were the keys to sustaining the growth even in the midst of uncertainties. However, the growing opposition to the Presidents Fiscal Policies needs to be given more attention.The clamor does have its points. Tax cuts, everyone must understand, have side effects. Remember, it is from taxes that the government generates revenues. Revenues that are badly needed to fund the operations of the government. These are the same revenues that run schools, hospitals, provides welfare to the poor, and funds homeland security and the war against terror. Without revenues where does the government go? What does it do? It borrows money. Huge amounts of money that, in the end, would be marked as owed by every individual in this country to some bank or foreign government.Overall, greater challenges loom ahead. The economy still faces long-term problems including inadequate investment in economic infrastructure, rapidly rising checkup and pension costs of an aging population, sizable trade and budget deficits, and stagnancy of family income in the lower economic groups. The country will call on again the time tested policies to deal with these adversities. As President Bush said Our economy is on the move and we can keep it that way by continuing to pursue sound economic policy establish on free-market principles.