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US Economy Facing Sharp Decline: Federal Reserve Chairman
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by James Pate | November 9, 2007 at 02:20 pm
2413 views | 22 Recommendations | 7 comments
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The US economy has taken a lot of hits recently. Between financing the wars in Afghanistan and Iraq, rising oil prices affecting every facet of production and delivery, shaky investor confidence after white collar scandals, most recently the failing subprime mortgage market issue and the dilution of the american dollar, economists are predicting turbulent times ahead for 4th quarter 2007 and beyond.w
Near-panic atmosphere as US Federal Reserve chairman testifies before Congress
On Thursday, one
day after American stock markets plummeted in the face of mounting bank
losses, soaring oil prices and record lows for the US dollar, Federal
Reserve Board Chairman Ben Bernanke gave a gloomy economic forecast in
testimony before Congress’ Joint Economic Committee.Bernanke admitted that the US housing slump and the credit crisis
resulting from soaring defaults of subprime mortages had worsened since
credit markets froze last August, and predicted that US economic growth
would fall sharply in the fourth quarter of 2007 and the beginning of
2008.He said the housing crisis would worsen in the coming months, as
millions of homeowners with adjustable rate mortgages faced sharply
higher interest payments when new rates kicked in, and hinted that the
crisis on Wall Street could spiral into a full-blown recession.On Wednesday, the Dow Jones Industrial Index fell 360.92 points,
wiping out all the gains since the Fed’s half-point interest rate cut
on September 18. The Standard & Poor’s 500 index dropped by 44.65,
while the Nasdaq Composite Index shed 76.42 points. The rout on Wall
Street was precipitated by a series of developments underscoring the
depths of the financial crisis.As the dollar hit record lows against the euro and other currencies,
Chinese officials said the weakness of the US dollar could lead them to
diversify their $1.43 trillion in foreign exchange reserves into
stronger currencies, such as the euro. A Chinese central bank vice
director told a conference that the dollar was “losing its status as
the world currency.”The US economy, saddled with massive trade and current account
deficits, depends on daily inflows of billions of dollars in capital
from China, Japan and other countries for the functioning of its
financial system. Any significant contraction of these capital flows
would lead to a collapse in the dollar, massive interest rate
increases, deep recession and the possibility of a US and global
depression.
According to the US Census Bureau website's "Population Clock", the current US population is 303,328,381 . If you take the percentage of the population who are employed, 62.7% or roughly 146.0 million people (http://www.bls.gov/news.release/empsit.nr0.htm, see paragraph 4) and divide it into the current deficit, US$9.815 trillion:
US$9,815,000,000,000 / 146,000,000 employed persons living in the United States
= US$67,226 / employed person living in the United States
If you are an american and you are working age, this is what you owe right now as part of the national debt. This number assumes that the national debt won't increase beyond US$9.815 trillion.
U.S. national debt sets another record – 9.815 trillion dollars
The national debt of the United States of America exceeded the number
of nine trillion dollars for the first time in history, the U.S.
Treasury said. Treasury Secretary Henry Paulson told congressmen in the
middle of September that the federal government would reach the legal
limit of the national debt on October 1 – 8 trillion 965 billion
dollars. The government would thus find itself in a state of technical
default on its obligations, Paulson added.
Henry Paulson urged
the Congress to pass the bill increasing the limit of the national
debt. The U.S. lawmakers followed the advice last month and approved
the new limit – 9.815 trillion dollars.
It was the fifth time
during George W. Bush’s presidency when the Congress raised the limit
of the national debt – in the total of 3.865 trillion dollars.
The
U.S. Democratic opposition believes that the ongoing increase of the
country’s debt testifies to poor financial policies run by the current
U.S. administration. The White House explains its requests with the
need to fund the wars in Afghanistan and Iraq and other conditions
required for the national security.
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James Pate
Downtown Toronto (Kensington Market / Chinatown / Grange Park), Ontario, Canada
Most RecentMost Recommended Comments (7)
at 14:33 on November 9th, 2007
Great work james, excellent references and context!
at 14:35 on November 9th, 2007
James Pate, good stuff. I love your calculations...scary thought, isn't it?
at 14:49 on November 9th, 2007
It's definitely alarming, especially considering the US economy isn't operating in a vacuum. The world economy will be greatly affected by a US economic recession or depression. Here's hoping the next administration will be more fiscally responsible and that we'll be able to wait until late 2008.
at 15:01 on November 9th, 2007
Good stuff.
at 21:44 on November 9th, 2007
James Pate, great story!
There are so many different levels to this Story, subject matter and causes.
Sadly the U.S. government and its citizen do not want to hear or even know how bad we are as a country! Those that are aware of the condition(s) the United States are either taking their gains and placing them for a better day or the opposite are the people who have taken a loss in the current market or ever worse lost or are losing their homes, jobs, cars and trying to gain control of whatever they can while they still have a chance! Those are the lucky ones, believe it or not, because they have a clue of what is going on in this country.
The scary part of this story is it will not be stopping any time soon and will be getting worse.
I do have a few suggestions to those (people) reading this.
First - Budget, grandparents where smart and went through this growing up (1930's) and that is why they worked all the time and saved and where frugal with money and where it was spent!
Second - Cut out spending on fast food or eating out, Yes this does not help the economy but for those that can not afford to go out this will make that meal at home special for those, friends, dates and family. Start talking with family and friends to schedule potluck meals at peoples house or apartment at least once a week, if not more... Create a community and use it not only to eat and stay healthy, but also to learn about each other!
Third - Start selling items you have not used or are just collecting dust, Now, not tomorrow or next week. Check e-bay or the web and see if its worth something more also! If you can make a little extra money for a solid upgrade on item(s) that will make life easier and sell the old items, go for it! If you have bills, focus on the most realistic one (bill) and pay it off with the extra money. Continue to pay off the bills in this manner one after another. Most importantly do not make new bills if possible. Small steps are better then a big leap that misses it mark!
Forth - Condense, consolidate and simplify your lives! However you do this, make it worthwhile, so you can start to see what is needed and not wanted in your life.
Fifth - This is most likely going to be the hardest of anyone as an individual or as a family in the bigger structure of family (birth and in-laws). Bare with me, for those that have family who live close by one another and all home - homes with mortgages - Start talking to each other about the financial conditions you are in and be open. If you do manage to get this far, find out who is better off then the others and who is worse off. Who is closest to having their mortgage paid off and who is not? Also consider, who still have mortgages standing and a bigger house or lot of land to expend on. Focusing on biggest and closest to paying off their mortgage, talk to them and see if you can help them pay off their mortgage and have room for your family to move in with them if possible for doing this. Put it this way if you where to loss your home in under a year anyway then sell it and place the money in another family members home and get them and you the security you need and deserve! Then those other members can start focusing on other members of the family and do the same!
Hope everyone understood that. (Wow)
No one said what is coming in this country will be easy. If you vote, voice your opinion NOW to those that are of government. You voted, now you have to believe you made a difference and voice it. Speaking against the wind if you have to, just bring a blow horn and speak loader to be heard.
at 08:10 on November 10th, 2007
Voting is a big one... We all (rightly, I feel) bang on about Florida in 2000 and Ohio in 2004, but it never should have come down to either state. Voter turnout in the US is abysmal, below 50%... If people actually *used* their voting rights, perhaps such situations could be avoided. As with budgeting, nobody will do it for you.
at 12:34 on November 10th, 2007
I can't believe in this day and age people still don't see the point of voting. You brought up a good point, Jordan. The race in 2000 and 2004 was close enough for votes to make a difference! Imagine if the entire electorate were informed and voted. I bet you any amount of money we wouldn't have had to endure 8 years of President Bush.
People always give me the following excuses:
1. My vote doesn't count
Counter argument: Yes it does, now more than ever because of polarization on the issues.
2. My third party candidate won't win, so there's no point
Counter argument: They're definitely not going to win with THAT attitude, Mister. I cannot stand strategic voting. I have voted for the party or individual who I believe to be the best candidate. Even if they don't win, it gives an indication that there is a segment of the population that disagrees with the elected politicians.
3. All politicians are corrupt, I'm not voting in protest!
Hey, nobody's perfect. I'll be the first to admit that politicians are often misleading and sometimes downright sleazy. But if you don't vote, you're giving your power away! Also as far as I'm concerned, if you didn't cast a vote you have no right to complain further down the road.
The problem is that people think the government automatically has their best interests in mind. In a perfect world, politicians would do what they were supposed to and we wouldn't need to stay informed. Too bad it's not a perfect world, so it is the duty of every citizen to stay informed and make their voice heard.