Unites States current macroeconomic status - Research Paper Example

THE UNITED S ECONOMY (Current Macro-economic Status) ID Number: of of School (University)Address of the SchoolEstimated Word Count = 700Date of Submission: April 07, 2012THE UNITED STATES ECONOMYThe economy today of the United States of America is not in the best of health. It had suffered crippling blows out of the meltdown in its sub-prime mortgage market back in 2007 and has not fully recovered yet despite the best efforts to revive it. The implosion of housing market had been a critical stage in its downward slide towards a deep recession although there are some encouraging signs lately but the signals are still weak as borne by various economic data.

A hard choice to make for the Federal Reserve Bank is whether to keep interest rates close to zero and in effect risk inflation or raise interest rates in the near future to increase the economys productive capacity (productivity) but at the risk of furthering its recessionary tendencies or forces. The Fed has tried all the monetary tools at its disposal but the economy simply would not budge. The high unemployment rate fell from a high of 9.5% (14 million jobless) to about 9.0% (12.8 million out of work) in December of last year.

It further improved to only 8.3% unemployed in February this year, with 227,000 non-farm payroll jobs added (Bureau of Labor Statistics, 2012, p. 1). Most of the new jobs were in professional and business services, health care, hospitality, mining, leisure and manufacturing. A fiscal policy the government is pursuing right now is the signing into law the JOBS Act (or Jumpstart our Business Startups) which is a fancy name for incentives intended for small businesses to more easily raise capital through crowdsourcing (Futrelle, 2012, p. 1) as it endeavors to clear away red tape and hopefully create more new jobs in the process.

The Fed is a bit apprehensive about stoking inflationary pressures but the threat of a double-dip recession is a much more real risk and so the Fed is embarking on third-part installment of its quantitative ease program (QE1 & QE2) and dubbed as “Operation Twist” to bring long-term interest rates lower, but downside is it might again lead to a moral hazard and a financial bubble (Curtin, 2011, p. 1). This monetary policy of the Fed to increase the money supply is consonant with all the other pump-priming activities of the government through its fiscal policies of reducing taxes and increased government spending for certain public infrastructure projects.

However, those chronic budget deficits of state governments had nullified most of the benefits of this program, as they in effect struggled to contain their deficits from large expenditures and lowered tax revenues. This was shown in August of 2011 when the private sector added a mere 17,000 jobs but the public sector lost 17,000 jobs due to various staff cuts. The combined monetary and fiscal policies had produced some positive news, with the latest employment figures for March 2012 showing that unemployment rate had inched down somewhat by adding a relatively weak 120,000 new jobs as compared to the previous month of 240,000 new jobs (Hauser, 2012, p. 1).The threat of inflation is practically nil at this time as the benign jobs growth and weak economy precludes inflationary pressures from building up (it is a bit below 2% only) and should not be a cause for worry.

The bigger problem, by all indications, is the new normal of a still high unemployment rate; at any rate, a little bit of inflation would be good (Krugman, 2012, p. 1). The Federal Open Market Committee (FOMC) should continue its monetary easing policies in order to fully revive the economy and not choke off a nascent and weak recovery, that is in real danger of stalling. Expansionary fiscal policy through a jobs-stimulus bill is a step in the right direction; Federal budget deficits can be utilized to revive an economy when the private sector cannot be expected to provide the slack in terms of creating overall demand.

It can greatly help to stabilize the economy but the Fed must be wary not to monetize these deficits as it can lead to inflation. A weak GDP growth means there is a lot of ground to cover yet; it grew 2.8% last quarter last year. Reference ListBureau of Labor Statistics (2012, March 09). Economic news release: employment situation summary. Retrieved April 05, 2012 from Bureau of Labor Statistics Web site: http://www.bls.gov/news.release/empsit.nr0.htmCurtin, S. (2011, August 04). Lance Roberts: QE3 might help the markets, but it wont save the economy.

Daily Ticker. Retrieved April 05, 2012 from http://finance.yahoo.com/blogs/daily-ticker/qe3-coming-won-t-save-economy-lance-roberts-161942266.html;_ylt=AujvG6RE6qtayoxJ56Esx9gp2YdG;_ylu=X3oDMTFpbzV1ZDUxBG1pdANET05UIE1JU1MEcG9zAzMEc2VjA01lZGlhRmVhdHVyZWRMaXN0RWRpdG9yaWFs;_ylg=X3oDMTM5ZzJkaWxiBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDZDU2MWU5ZWQtNTE1NS0zZjY3LWFmYjQtMmJjYWM2MWIzNzQzBHBzdGNhdANleGNsdXNpdmVzfGRhaWx5dGlja2VyBHB0A3N0b3J5cGFnZQ--;_ylv=3 Futrelle, D. (2012, April 05). “Will the JOBS Act live up to its name?

” Time Magazine. Retrieved April 05, 2012 from http://business.time.com/2012/04/05/will-the-jobs-act-live-up-to-its-name/ Hauser, C. (2012, April 06). “U.S. added only 120,000 jobs in March, report shows.” New York Times. Retrieved April 06, 2012 from http://www.nytimes.com/2012/04/07/business/economy/us-added-only-120000-jobs-in-march-report-shows.html?_r=1&adxnnl=1&ref=global-home&adxnnlx=1333718754-zXSdz6HNAtJOBpI6qSNZ9w Krugman, P. (2012, April 05). “Not enough inflation.” New York Times.

Retrieved April 06, 2012 from http://www.nytimes.com/2012/04/06/opinion/krugman-not-enough-inflation.html?scp=1&sq=U.S.%20inflation&st=cse