How is our current Economic growth compared to 30 years ago

Custom Student Mr. Teacher ENG 1001-04 23 September 2016

How is our current Economic growth compared to 30 years ago

The year 1979 saw both external and internal conditions become difficult owing to rising inflation with end user prices increasing by 13%. The years 1979 to 1981 saw the US experience a double-digit price increase owing to global petroleum price increases, federal financial policies, plus the spending patterns of the government. The United States economic system started to take a descending trend. In order to manage such financial troubles, the administration of jimmy carter squeezed the national financial plans and implemented financial restraint (United nations, 2008).

The administration as well declared short plus long-term energy regulations and attempted to control the financial climate. By mid 1900s, the US was a key end user of almost each significant industrial unprocessed material. Approximately 40 percent of the global total production of commodities was done in the US industries, even though American population was approximately 6 percent of the global total, with its total territory area being approximately 7 percent of total earth surface (Kubarych, 2002).

United States production has gone on expanding recently, although at a more sluggish pace compared to other First World nations. THE United States by far surpasses each other country in the volume of her Gross national product (GNP) in unqualified terms. Unites states’ GNP experienced a growth rate of more than 300% ($3. 3 trillion) from 1970 to 1983. The year 1998 saw Americas Gross Domestic product (GDP) REACH $8. 5 trillion; per person GDP reached $31,500. 2002’s per person GDP mounted to $37,600, with national GDP amounting to $10. trillion. US Inflation in the 1990s was not significant as it was from the 1970s to 1980s. US rates are lower than those of many First World nations. From 1970 to 1978, for instance, end user prices rose by 6. 7 percent per annum (Sheikh, 1999). Following twenty years of financial prosperity, the US witnessed a financial decline in the 1970’s, an era famous for the unparalleled blend of stagnating economic progress plus inflation, which led to the development of the term stagflation.

Overseas competitors within Europe and Japan confronted the world dominance of US manufacturers, whereas the 1973-1974 and 1979 petroleum crises eroded public trust in business and government institutions (Fisher, 2009). The mandatory Lockheed and Chrysler bailouts symbolized the tough changeover to a fresh economic period, characterized by the significance of the service segment and plus the growth of little business ventures. During the initial presidential tenure of Ronald Reagan, beginning in 1980 to 1984, America witnesses 2 harsh recession years succeeded by 2 strong recovery years.

Inflation rates declined with many new job opportunities created. However, the early plus mid-eighties economic growth was accompanied by several shocking developments. National budget shortfalls, arising from spectacular military expenditure increases, and from increasing entitlement plan, for instance, Medicare and Medicaid, costs, averaged in excess of $150 billion per year. As at 1992, total shortfall amounted to $290 billion, in other words $1,150 per each American citizen (Marcy, 2008). Additionally, company debt increased spectacularly, and family borrowing increased twofold compared to personal revenue.

The 1980s as well experienced banking crisis due to several factors including: problem lending to Third World nations; elevated interest and inflation rates; and speculative property market schemes that made many banks collapse when the early 1980s property market boom collapsed. The Ronald administration brought in Reaganomics in 1981, which were fiscally-expansive financial policies, thus reducing federal revenue levy rates by twenty five percent. Inflation reduced from 1980’s 13. 5 percent figure to a mere 3 percent in 1983 because of tougher control of interest rates and money supply by the Federal Reserve and a brief recession.

Real GDP went on increasing and unemployment went on rising to peak at 10. 8 percent in 1982, and then fell to 5. 4 percent in 1989. The disparity between the wealthy and the poorest increased whereas the national debt tripled. In 1981 the national debt was $930 billion; it stood at $ 2. 6 trillion in 1988. The United States began to experience huge trade shortfalls (http://www. mofa. go. jp/POLICY/other/bluebook/1980/1980-1. htm). The beginning of deindustrialization from the late 60s to early 70s made income differentials rise to an all time high.

However, consumers had a record ability to purchase quantities of commodities they never were able to purchase before. Due to the practice of US companies to outsource heavy engineering and manufacturing labor operations to less developed nations, income differentials rose dramatically. The US Gini coefficient in 2005 had increased from 1968’s 0. 386 to 0. 469. The difference between the wealthy and the impoverished grew larger by the close of the 1900s. The proportion of the national revenue appropriated by the wealthiest American household increased from 1977’s 18. % to 1990’s 24. 5%, whereas the proportion of the most poor dropped from 5. 7 percent to 4. 3 percent. Outside America’s trade circumstances worsened due to the development of a swelling trade shortfall by a combination of a passive American dollar and elevated foreign investment levels. The 1990s saw America plunge into an economic recession due to rising petroleum prices after Iraq invaded Kuwait, reducing credit availability, and a steep interest rates rise (McConnell, Bruce, Flynn, 2006, 137). Output dropped by 1. 6 percent with 1. 7 million job opportunities being lost.

Unemployment levels increased from 1989’s 5. 2 percent to 1991’s 7. 5 percent. As at 1998, unemployment rates had dropped to 4. 5% (Sheikh, 1999). The revival that commenced in 1991 launched a continuous expansion period, which boasted of being the 3rd largest, since the Second World War, in 2000. Actual GDP growth varied from 2 percent to 3. 5 percent; the figures for 1998 were 3. 9 percent. Following climaxing at 7. 5 percent, unemployment dropped progressively during the early and mid 1990s, dropping to 5. 6 percent by 1995, 5. 3 percent at the close of 1996, and remaining less than 5 percent in 1998.

Inflation generally remained less than 3 percent past 1993/1994. The stock markets were exempted from being influenced by the restrained economic climate; they increased from 1995 to 1997 owing to reduced employment, strong company profits, and reduced inflation. Stock markets expansion had declined as at 1999/2000. The bipartisan balanced-financial plan, that was passed and ratified in 1997, was another reason for buoyancy. The scheme, merging spending and tax cuts over some 5-year duration, aimed to balance the national financial plan by the year 2002.

The government, in 2001, predicted a $275 billion budget excess for the financial year ending 2001 September, a prediction that was soon reversed. At the dawn of the 21st century, substantial financial concerns, apart from the usual concern regarding how much longer the boom would last before ultimately collapsing, included America’s huge trade shortfall, the rising medical expenditures for aging citizens, plus the inability of the sturdy economic system to enhance the circumstances of the impoverished. Starting in 1975, household revenue gains were witnessed almost solely by the top 20 percent households.

Nevertheless, towards the close of the 1990s plus early 21st century, productivity continued to expand, the job market was squeezed, and inflation remained comparatively low. Economic expansion halted by mid 2001, mainly owing to the conclusion of the extended asset boom, particularly within information technology sectors. The economic system suffered a recession towards the close of 2001, affecting the manufacturing and service sectors. The September 11th 2001 terrorist attacks on the US worsened the underperforming financial situation. 001 Mean real GDP growth increased by a mere 0. 3 percent. The economic system of the United states, which in the 1990s dictated worldwide economic progress, turned out to cause global financial decline in north America, Japan, Europe, southeast Asia, and Latin America. The economic system began a slow recovery in 2002; GDP growth estimates were 2. 45 percent. Scholars attributed such modest upturn to the capability of commerce think tanks to react to financial inequities on the basis of real-time data, deregulation, plus creativity in product and financial markets.

However, local confidence regarding the economic system continued to be low, and combined with key company failures, such as World Com and Enron, plus extra stock market limits, the upturn remained uneven and sluggish. Growth declined by the close of 2000, with unemployment rates rising to 6. 3 percent by July 2003. CPI rates of inflation dropped to below 1. 5 percent at the start of 2003. This raised anxieties regarding the possibility of deflation. There was also a significant increase in armed forces expenditure due to the 2003 Iraq war (http://resources. metapress. com/pdfpreview. xd? code=wr28t0l0n1187370&size=largest). After the Iraq war, consumer expenditure and stock values rebounded; housing market continued to be sturdy; inflation rates were low; extra tax reductions were enacted; the American dollar decreased in value on global markets; growth productivity was sturdy; and petroleum prices dropped (McConnell, Bruce, Flynn, 2006, 131). Due to such factors, numerous analysts forecasted a more positive financial situation come 2004. However, the national budget shortfall was predicted to amount to $455 billion in 2003, the biggest deficit ever recorded.

The US economic climate was mainly shaped through private expenditure; the decline of private expenditure had a vital role in slowing down the gross national product growth rate. However, fixed ventures were as well already declining. Nevertheless, economic progress did not persistently decline in 1978; rather, it varied significantly from, one quarter to the next. Despite the fact that the rate of growth showed consistent patterns, the anticipated improvement regarding the US balance of payments was not realized. The year 1979 witnessed a sharp decline in car trade by America’s 3 main auto manufacturers, Ford, Chrysler, and General Motors.

This led to the dismissal of about 100,000 employees in the automobile industry. By 2002, the US economy had a number of weaknesses and strengths. The strengths were witnessed in: the housing market; automobile sales; imports, military expenditure; and inflation. Weak segments were: the labor market; trade fixed investments; construction; bank loans; and profits. Regarding strong points, the housing sector witnessed sturdy price rises, averaging approximately 7 per year. Reduced interest rates allowed households to re-fund mortgages and dispense some gains on homes.

Credit card and car loan access was as well simple. Such extra monetary resources support sturdy consumption expenditure. Regarding automobile sales, owing to sufficient liquidity, consumers could capitalize on low-cost funding incentives and price reductions to purchase automobiles at prodigious rates. However, automobile firms were unable to earn much due to the existence of a highly aggressive environment where pricing supremacy was non-existent (Yellen, 2008). Pertaining to imports, much consumption emerged in form of increased import levels and current account and trade deficits.

In defense expenditure, the increase in armed forces hardware, particularly aviation spare parts and airplanes added approximately 0. 5 percent to GDP expansion. Inflation was mainly caused by petroleum and housing prices. In 2002, labor market growth was minimal and new layoffs diminished. Unemployment rate stood at 6 percent. Regarding trade fixed investments; there was tremendous surplus capacity within a number of ultra-modern industry sections, particularly telecommunications apparatus. Senior managers further tightened investment budgets.

In the construction industry, the drop in non-housing property development was catastrophic. Local government and state infrastructure programs were downsized due to budgetary constraints. Regarding bank loans, standards were tightened and costs increased, particularly for borrowers with little creditworthiness. Loan demands dwindled. Regarding profits, numerous industries were not making any profits (http://www. nationsencyclopedia. com/Americas/United-States-ECONOMY. html). The US economy in 2008 shrunk at a 6. 3 percent yearly rate in the last quarter of 2008. Unemployment rates are increasing with about 13. million unemployed people, translating to an 8. 5 percent unemployment rate. This situation has worsened the home market problem. A recent Case-Shiller survey indicated that the decline in home prices increased in 20 surveyed city districts, declining nineteen percent per annum for the 3-month time period concluded in January 2009. Business owners have added to the problem by reducing expenses, especially the labor cost, and operating squeezed inventories, downsizing delivery lines, postponing all except the most compulsory capital spending, and generally evading risks in order to maintain business margins.

The outcome is that the American economic system is static, with no new ventures and no gains (http://www. oecd. org/document/45/0,3343,en_2649_34573_38630765_1_1_1_1,00. html). The contraction of us overseas markets, that are essential to economic growth through the sale of high-value services and goods, is another negative development. The World Bank predicts that global economic systems will experience a 1. 7% decline in 2009, with international trade experiencing a 6. 1% decline. The Federal Reserve is taking radically proactive plus highly creative measures to reinstate credit market vibrancy and control financial decline.

In about 1 year, the Federal Reserve has: set up a loan structure for main security merchants , adopting fresh types of guarantee for such loans; started exchange lines with 14 key trading partners , for example, Bank of Japan, European Central Bank, Bank of England, Banco de Mexico, Monetary Authority of Singapore, and Korean Central Bank , to offer such overseas central banks the capability to provide united states dollar financial support to organizations under their command ; developed facilities for backstopping financial market joint funds; started fresh mechanisms in conjunction with the Federal Deposit Insurance Corp. nd the Treasury to fortify particular banks’ security; carried out a key plan to buy business paper, which is a major element of the economic system; started to reimburse bank reserves interest; declared plans to purchase as much as $100 billion of Fannie Mae, Federal Home Loan, and Freddie Mac direct debts, and then pushed up the amount to $200 billion; declared plans to purchase $500 billion worth of the mortgage-backed securities supported by Freddie, Ginnie Mae, and Fannie, then pushed the amount to $1. 5 trillion; declared and recently implemented a novel facility for supporting the provision of asset-supported securities guaranteed by learner loans, credit card loans, car loans, plus loans collateralized by the Small Business Administration; and commenced the procedure of buying as much as $300 billion worth of long-term Treasury securities to assist enhance private credit markets conditions.

In addition, the Federal Open Market Committee (FOMC) lowered the federal funds levels to 0-1/4 of 1 percent. At the same time, the FMOC reduced the rates charged on banks when they borrow from FMOC’s discount window in order to reduce the credit cost to the economic system. Therefore, the balance sheet of the federal reserve has expanded to about $2 trillion currently, which ids in excess of twice the increase witnessed since its inception in 2008.


  • Subject:

  • University/College: University of Chicago

  • Type of paper: Thesis/Dissertation Chapter

  • Date: 23 September 2016

  • Words:

  • Pages:

We will write a custom essay sample on How is our current Economic growth compared to 30 years ago

for only $16.38 $12.9/page

your testimonials