How does the U.S. Economy affect the global economy - Essay Example

The United states directly buys goods from other countries. The countries that offer their low -priced goods to the American consumers include China, India, European nations, Southern American states. Many United States companies like McDonalds, Unilever, Kentucky Fried Chicken and 7 eleven 24 hours have set up their branches in many major cities around the world.In 2006, "The mighty United States stock market is defying gravity. The unbelievable element is that the Dow Jones Industrial Average--the Americans' main share-price index--is roaring, against a slew of evidence that beyond Wall Street, America's broader economy is in very serious trouble.

The Dow has in past days hit a new high, touching 11,720, a level not seen since January 2000, when shares surged off the back of post-millennium hubris and the dotcom boom"(Halligan, 2006, p. 14). This caused many stockbrokers in the United States and other stock exchanges around the world that the United States economy looked ghastly. This is of course apologies to Al Gore in his inconvenient truth theory. The United States economy had grown by only a lowly 2.6 percent for the second quarter of 2006.

This is lower than the 5.6 percent figure from the first quarter of 2006. Evidently, the United States economy is the world's largest economy. For, the United States is the biggest buyer and importer country in the world. Thus, any economic situation in the United States will definitely affect the economies of other countries in the world. The slump in the United States economy has been brought about by the slow down in consumer spending. Another major reason is that the United States housing market had finally cracked open.

The house prices were two percent lower than the prior year, 2005. This resulted to the first fall in the value of United States properties starting in 1996. The Americans had borrowed large sums of money to pay for their new homes. This spending spree in the United States had brought the country's growth and creation of millions of housing related jobs. In response, there was an increase in imported goods from Asia and Europe. Thus, the other countries were able to benefit from the increase in the United States economy.

However, the robust housing economy ended sadly. There was a glut in house sales. The stocks of unsold houses was sixty percent higher than the unsold houses of the prior year, 2005. Thus, the people cut down on their spending habits because their income was tied to paying the high debts brought about by the buying of houses. A halt in the buying spree resulted to a low store sales. A slow store sales caused the retrenchment of some of its employees. One reason for the economic downturn in the United States is that the rising cost of oil has been aggravated by the rising inflation problem here (Halligan, 2006, p. 14). In 2006, the world inflationary pressure were increasing, One of the factors creating this world economic debacle is the rising oil prices.

However, the impact of rising oil prices on inflation and output is currently muted as compared to prior inflationary periods in the United States and the world. This global imbalance where the global growth rate had hastened to 5.1 percent in 2006 and slowing back in 2007 to the tune of 4.7 percent has caused global imbalances that stayed pegged with the U.S. dollar foreign currency exchange rate falling at another thirty percent has cut into half the U.S current account deficits. However, the U.S. economy had only grown by three percent a year in 2006 an last year, 2007.

The current economic slowdown in the United States is caused by increasing inflationary pressures. On the other side of the world, the Japanese economy has been self sustaining and its gross domestic product had risen