Reason for Slow Recovery of the US from Financial Crisis - Essay Example

US (DIDN’T) Recover Quickly From the Financial Crises Table of Contents Introduction 3 Discussion 3 Reason for Slow Recovery of US from Financial Crisis 4 Evidences Showing Slow Recovery of the US from Financial Crisis 7 Conclusion 9 References 11 Introduction The financial crisis that erupted during the year 2008 has serious impact on the economies of various nations of the world. The undesirable impact of the crisis can be seen in the domain of employment, business sector and governmental operations among others which altogether deteriorated the economic conditions of the nations all over the world. The financial crisis has seen to be equally affected both the developing and the developed countries of the world further hurting the economic stability of the global world. However, gradually the countries have been able to attain stability and overcome the economic challenges posed by the crisis situation. Some country attained economic stability at a rapid pace and vice versa. But the argument that has caught the attention of experts all over the world is the aspect that the US has not been able to recover quickly from the financial crisis (Gros & Alcidi, 2010). In order to get a comprehensive understanding in this regard, the paper will thoroughly discuss about the aspect that the US has been among the nations that has shown slow recovery from the economic turmoil citing relevant evidences. Discussion Notably, the economic crisis was a result of the asset price bubble mainly in the real estate sector along with a credit bubble that yielded excessive leverage. Owing to the crisis, house price were increased in the US and some regions of Europe. The corporate and the financial sectors also got negatively hampered from the crisis especially in the US (Refer Fig 1). Moreover, sudden drop of demand in the capital extensive goods further spread rapidly affecting the global supply chain. This shows that the recession had equal impact on topmost nations of the world which account for maximum percent of the global economy (Gros & Alcidi, 2010). Fig 1: Impact of the Crisis (Gros & Alcidi, 2010) During and after the crisis situation, countries had taken measures for overcoming the effects of the crisis through ensuring a rise in the per capita income. Countries such as Germany and the US have shown improvement in their respective economy after 5-6 years of the financial crisis. However, it is the speed of the recovery that is worth to have an argument of. It is often believed and argued that US has been quite slow to recover from the financial turmoil which has further impacted the global economy negatively (Reinhart & Rogoff, 2014). Reason for Slow Recovery of US from Financial Crisis Several reasons have been identified with regard to the recovery of the US from the financial crisis of 2008. In this regard, it can be argued that owing to uncertainty and policy missteps along with the severity of the financial crisis have contributed towards hindering the process of climbing back to the top from the economic downturn as per the viewpoints of various economists. Notably, some of the factors both prior to the crisis and post crisis are held responsible for the slow pace of the US crisis recovery. The dismal performances of various financial institutions have major contributions in reducing the pace of the recovery from the economic turmoil for the US economy. The current recovery pace of the US economy hold relevancy with the post-world war I period. According to research conducted in this particular subject matter, it is believed that as per records from history, recovery from any financial could take 6-7 years on an average. The current recovery in the US showed the pace similar to the recovery pre-World War I which was also quite slow. This might also be owing to the political uncertainty that prevailed prior, during and after the crisis situation. The uncertainty in the political condition of the nation owing to media coverage, changing taxation policies and differences amid the economic forecasts which further worked towards reducing the pace of recovery from the economic crisis. Additionally, with the aspect of uncertainty in the domain of taxation and other regulations, consumers were quite reluctant to increase their spending which again worked negatively with regard to the economic growth of the nation further resulting in slow recovery in the post-recession period (Refer Fig 2). At the same time, increase in political polarization can also be attributed as a potential reason for slow growth of the economy as it is often associated augmenting the level of uncertainty. Apart from that missteps in the policies of the government with regard to fiscal and monetary measures have further contributed largely in enhancing the level of economic trouble which reducing the speed of recovery from the crisis. Hence, altogether, it can be affirmed that the slow recovery from the crisis was a result of ineffective attempts of the policy makers up to a certain extent (Cronin, 2014). Another important aspect that has hindered fast recovery of the US economy from the crisis situation can be affirmed as the severally damaged financial sectors of the nation. Since the financial sector of the nation does not heal quickly from the turmoil, which further obstructs them to lending big sum of amounts to the public sector of the country (Samuelson, 2014). Fig 2: Economic Growth of US (Obel, 2013) Again, it has also been argued that the policies that were being framed after the crisis situation to ensure successful recovery were also unfavourable which was further accompanied with ineffectiveness and lack of proper implementation of the same. The policies framed were unprecedented, unpredictable and failed to follow the basic strategies of recovery. Despite of the policies of the government with regard to reduce the flow of liquidity, lack of positive results can be clearly depicted. The policies of the government helped a little in the domain of employment or economic growth or growth in the business sector which further resulted in reducing the chances of fast recovery of US after the crisis situation. This aspect clearly depicts the reasons behind slow recovery of the US from the recession (Taylor, 2013). Evidences Showing Slow Recovery of the US from Financial Crisis In the above discussion, the primary focus was placed on ascertaining the major reasons owing to which the US has seen slow recovery from the financial crisis further impacting the global economy negatively. Contextually, it will be important to present the evidences that show the slow recovery of the US after the crisis situation. In the year, 2009 the US officially began to restructure its economic domain to deal with the aftermath crises situation for ensuring recovery from the financial crisis which was further executed in snail pace as per the viewpoints of the experts. It has been widely argued that the recovery from the financial crisis was quite weak on the end of the US as the crisis was quite severe in nature. This aspect can be evident from the past records which show that there were eight successful recoveries that the country had experienced in the past recessionary situations (Refer Fig 3). The average of all the recoveries that the country has undergone till the last financial crisis depicted that the nation need 8 quarters on an average to recover from the crisis at a rate of 6% recoveries per year. However, the recovery of the US from the post crisis situation in the year 2007-08 is considered to be low as it shows the figure of 2% growth as compared to 6% growth in the past. This aspect clearly shows that the US has been experiencing a weak recovery from recession (Taylor, 2013). Fig 3: Previous Recoveries From Financial Crisis (Taylor, 2013) In order to strengthen this particular argument, certain more facts can also be presented. An example in this regard is the figure related to employment of the present day context in comparison to that of the figures prior to the recession. According to the report of the labour bureau of the nation, despite of creating 88,000 jobs within the nation, the total employment of the nation showed undesirable figure of with 3 million more still to be employed as compared to that of the figure of pre-recession situation. In addition to that the level of participation of the in the labour force within the nation has also felt 63.5% which is again the lowest ever recorded. This aspect also depicts that US has not been able to ensure quick recovery from the recession. Apart from the employment sector, the weakness of the recovery can also be comprehended from the household income median of the people of the nations after the recession took place in the year 2008. According to reports, the annual median of the household income level of the nation has dropped considerably in the year 2012 as compared to that of the figures in 2010. The annual median household income was $45,018 in 2012 which is considerably less from the figure of 2010 i.e. $51,144. This also depicts that there is very little momentum in the recovery process. Again in the domain of factory output, there has also been a fall of 20% from the year 2009. Reportedly, there has also been a decline in the production of the consumer goods by a considerable margin of 14% after the recession which shows only half of the recovery after the financial crisis in the year 2008. Again the existing home sales in the US in annual basis is also deemed to be less by 10% from the peak level along with the decline in the new home sales by almost 20% after recession. Again the growth of the nation in the domain of GDP is also depicting the results opposite to what it should have been as per the recovery process. The GDP growth rate in the year 2012 was 1.7% as compared to 2% in 2011 and 2.2 % in 2008 further depicting the pace on which the economy of the nation is stabilising. The increase of the US debts is also an indicator of slow recovery from recession. Currently, the debt books of the nation shows a figure of US$3.25 trillion as compared to that of the figure of US$800 billion in the year 2009 (Obel, 2013). These aspects also made it apparent that the recession recovery of the US is indeed quite slow. Conclusion From the overall analysis of the paper it can be comprehended that the global economic turmoil that erupted in the year 2008 has left severe impact on the world including some of the economically stable nations of world. The impact of the recession can be seen in various domains of the nations which altogether impact their respective economies. However, a major impact of the recession has been seen on the US from which it has steadily recovered in course of time. But people argue that the speed of recovery of the country has been quite slow as compared to that of the speed of recovery in previous years. In order to support this aspect certain facts and figures has been provided in the paper. References Cronin, B., 2014. Why Has U.S. Recovery Been so Slow? The Wall Street Journal. [Online] Available at: http://blogs.wsj.com/economics/2014/01/03/why-has-u-s-recovery-been-so-slow/ [Accessed May 07, 2014]. Gros, D. & Alcidi, C., 2010. The Impact of the Financial Crisis on the Real Economy. Downloads. [Online] Available at: https://www.google.co.in/search?q=The+Impact+of+the+Financial+Crisis+on+the+Real+Economy%2C+pdf&oq=The+Impact+of+the+Financial+Crisis+on+the+Real+Economy%2C+pdf&aqs=chrome..69i57.1255j0j4&sourceid=chrome&es_sm=93&ie=UTF-8# [Accessed May 07, 2014]. Obel, M., 2013. US Is In Recession, Says Noted Economist; Why The Obama Economic Recovery Plan Has Faltered. International Business Times. [Online] Available at: http://www.ibtimes.com/us-recession-says-noted-economist-why-obama-economic-recovery-plan-has-faltered-1155211 [Accessed May 07, 2014]. Reinhart, C. M. & Rogoff, K. S., 2014. Recovery from Financial Crises: Evidence from 100 Episodes. Home. [Online] Available at: http://www.nber.org/papers/w19823.pdf?new_window=1 [Accessed May 07, 2014]. Samuelson, R. J., 2014. Financial Crisis Planted Seeds for Slow Recovery: Robert Samuelson. Home. [Online] Available at: http://www.oregonlive.com/opinion/index.ssf/2014/02/financial_crisis_planted_seeds.html [Accessed May 07, 2014]. Taylor, J. B., 2013. Causes of the Financial Crisis and the Slow Recovery: A 10-Year Perspective. Stanford Institute for Economic Policy Research. [Online] Available at: http://siepr.stanford.edu/?q=/system/files/shared/pubs/papers/Causes_of_the_Financial_Crisis.pdf [Accessed May 07, 2014]. Read More