http://money.cnn.com/2008/01/21/news/economy/recession_global_dimensions.fortune/index.htm?postversion=2008012213
This fits directly with what we have been talking about in class. We (the U.S.) are worried about job scarcity here, and many jobs are being created abroad. This is creating an increase in the unemployment rate. It basically is jobs are not being created here, which is what we need. Something to watch in the future.
The article also discusses the fact that in the past decade or so Americans have been spending money like crazy, while the rest of the world has been saving by the billions. Now we find ourselves borrowing their money to pay ridiculous prices for good and things we need, such as houses. Basically, if everyone else didn't save their money for us we would be in pretty bad shape now.
A great point was also made that at one time America influenced the world economy and now it is turning around where we are influenced by the world. It is a fact that I do not believe everyone has grasped quite yet and is possibly key for success.
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Still, something to keep in mind is that some of the generalizations made here were more of macro- than microeconomics. Yes, as a country, the U.S.A. has been spending a lot lately (especially on the war). However, it is in the midst of this recession that we find that Americans aren't spending enough. As our national economy starts to fall apart, due to the reasons you listed, people are stockpiling their personal stashes of money in hopes to be better prepared if and when they lose jobs or when inflation takes over. Although this is a smart idea for individuals, it doesn't work for the nation as a whole, and the lack of spending is digging us all a deeper grave, as less money is spent and, consequently, less products and services are purchased, decreasing the amount of jobs required to keep production constant. As a result, more people lose their jobs and the national economy continues its downward spiral. Hence, the new economic stimulus package. It's supposed to make individuals spend more to improve the economy, even if the nation spending too much as a whole is a bad thing for the nation.
Hey Caitlin - great article! There's a TON of information in there. And me, being me, of course I can't let it slide without some corrections and comments... ;)
We aren't in a recession. We're in a slowdown. To be in a recession, you have to have (this is the basic definition, Macro 101) 3 consecutive quarters (3 month time periods) of negative GDP. We haven't had a quarter with negative GDP lately. It's been awhile.
(GDP = sum total of the dollar value of all goods & services produced in an area over a specific time period - the percentage, if positive, shows growth. If negative, it shows contraction.)
We have had quite a few quarters of GDP slowdown - like, it was 4% while back, and then it was about 2%, and the numbers for the 4th quarter of 2007 showed it at something like 0.5%. Still positive, but REALLY low.
Anyway - right now, the unemployment rate is actually pretty healthy. It's just under 5%, which is seen as good, because it shows that there's room for growth. If people are unemployed, they could get jobs and work, making more stuff, which would mean growth, right? When it gets higher than 5%, the gov gets edgy.
And inflation is not a problem right now. In fact, during times of slowdown (like now), DEflation is more of a concern (if you want to see the gov go absolutely nutso, just hint that we might be facing deflation - they go crazy. it's the fear of the Great Depression that hits them (a time of huge deflation, not inflation)).
Anyway. The 'savings' portion of this is the most interesting, and the part that will affect us here in the US for many years. We have had a negative savings rate here for ...6 years? 7 years? That means, on average, that most people not only don't save a penny, but they use debt to buy things they cannot afford to fund that, taking even more away from their savings.
Wonder why we borrow money from Japan and China? Because their average annual savings rate per capita is somewhere around 15%. FIFTEEN percent! Compared to the US somewhere around -2%.
Hmm...what problems could this cause?
Yeah. Serious ones.
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