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Current Macroeconomic Situation in the U.S - Essay Example

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The health of the U.S. economy has always determined the attainment of the American dream. It is however, threatened since the implosion of the U.S. sub-prime housing estate bubble in 2007. Discussion The United States Federal Reserve Bank is in tight situation these days as the economy of the country still cannot get out of the deep recession that started in 2008. It has tried almost all the tools it has at its disposal but the lingering effects are still there, with the threat of a recession very real as the economic recovery continues to falter due to a number of external factors such as Europe having big financial problems of its own dealing with the sovereign debt crisis that has a few countries tottering on the edge of default such as the PIIGS (Portugal, Italy, Ireland, Greece and Spain), Japan still reeling from the effects of the tsunami last March and subsequent nuclear catastrophe while China's economy is also starting to slow down already (Sommer, 2011, p. 1). A lack of viable policy options has the Fed chairman Ben S. Bernanke contemplating the revival of an obscure 1960s era of monetary policies known as “Operation Twist” because the economy is clearly in need of help but not sure on what tool to use, possibly something that is different. Unemployment – the severity of the current U.S. recession can be judged by zero growth in new jobs as of August 2011 (latest unemployment data available); this is the first time it had happened since end of World War II (Frean, 2011b, p.

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1) and the unemployment rate remained anchored at a stubborn 9.1% despite various measures to stimulate hiring of new workers such as tax breaks for small businesses. Among the measures contemplated is putting crews to work on a variety of infrastructure projects, such as renovating bridges, roads, airports and seaports. This is reminiscent of the New Deal programs by Pres. Franklin D. Roosevelt during the Depression. Its aims can be summarized into the 3Rs, namely: relief, recovery and reform. The economy added a mere 17,000 jobs in the private sector but was offset by 17,000 jobs lost in the public sector as some government units trimmed down their workforce due to budget deficits. Net job gains June and July were revised downwards by 58,000 and the number of hours worked per week also fell. Bernanke himself cautiously admitted the US economy is in real danger of stalling, with the U.S. GDP having shrank by 5.1% instead of 4.1% between Q42007 and Q12009 (Frean, 2011a, p. 1). A total of 14 million adults remained unemployed, little changed since April (BLS, 2011, p. 1). Inflation – the threat of a second recession (double-dip recession) is much greater than a threat coming from inflationary pressures resulting from increased money supply. The U. S. Fed therefore is also contemplating on embarking on a third part installment of its quantitative easing program (QE3) after the QE1 and QE2, although its effects are lower due to diminishing returns (Curtin, 2011, p. 1). The aim of “Operation Twist” is to bring long-term interest rates lower such that businessmen are encouraged to invest that will create jobs and consumers will spend again to increase demand. The downside of low interest rates is another financial bubble might form.
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Summary

U.S. - CURRENT MACROECONOMIC SITUATION Name of Student (author) Student ID Number: E-mail address: Name of Course: Professor’ Name: Name of University Word Count: 974 October 05, 2011 Introduction This paper gives a brief but concise snapshot of the United States economy at this point in time by looking at some key indicators such as unemployment, inflation and recession threats…
Current Macroeconomic Situation in the U.S
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