Debt that the United States Owes China - Research Paper Example

Capitalism is a spectacular form in which societies are created. Capitalism is based on market democracy in which consumer spending is a vital component of driving the economy of supply and demand. One of the reasons why the American economy thrives is due to the spending ability of the middle class in this country.

Compared to other nations, American families, in contrast, are able to afford more products on a grand scale than most countries around the globe. However taking a flashback towards the rise of capitalism, one cannot refute the fact that the upper class in the 1900’s controlled the surplus of the products. In essence, the rich controlled the resources and used the working force of the upper and lower class. However, the upper class continued to reap the profits and used them for future investment.

The whole essence of that was to improve the process of production that can not only facilitate the workforce but also enabled them to reach a higher level of efficiency. Stock prices have dropped sharply and both the NASDAQ and Dow Jones have suffered. Scholars have insisted that the NASDAQ has lost more than 63 percent of its value since March 2000. In addition, individuals have lost about $5 trillion in the value of stocks traded on major U.S. exchanges. More than 400,000 workers have been laid off, which has drastically been detrimental to the economy.

The current recession that occurred internationally has forced the American economy to hinder. When the economy collapsed occurred, the majority of the banks failed to accumulated the loans they were obligated to receive from the customers. In the midst of this chaos, the banks failed to make any revenue and tightened the parameters in which loans can be the lender. However, the mid and small size businesses in this recessive environment have no build-up capital to initiate their venture. Thus, this poses a problem for a capitalistic economy that is so driven by regional economies.

Since capitalism is so driven by the purchasing power of consumers, it is crippled when spending diminishes. The domino effect not only occurs at the macro but also at a micro-level.