Current Situation of US economy

Current Situation of US economy

Introduction

The economy of the United States is the largest national economy in the world in both nominal value and by purchasing power parity. Its nominal gross domestic product (GDP) was estimated as $14.4 trillion in 2008, which is about three times that of the world's second largest economy, Japan Its GDP by PPP is almost twice that of the second largest, China. (Bergsten, 2009)

The U.S. economy maintains a very high level of output per person (GDP per capita, $47,422 in 2008, ranked at around number ten in the world). The U.S. economy has maintained a stable overall GDP growth rate, a low unemployment rate, and high levels of research and capital investment funded by both national and, because of decreasing saving rates, increasingly by foreign investors. In 2008, consumer spending made seventy-two percent of the economic activity in the U.S.

US economy in the past

The economic history of the United States has its roots in European settlements in the 16th, 17th, and 18th centuries. The American colonies went from marginally successful colonial economies to a small, independent farming economy, which in 1776 became the United States of America. In 230 years the United States grew to a huge, integrated, industrialized economy that makes up over a quarter of the world economy.

The main causes were a large unified market, a supportive political-legal system, vast areas of highly productive farmlands, vast natural resources (especially timber, coal and oil), and an entrepreneurial spirit and commitment to investing in material and human capital. (Ferguson, 2009)

Current Situation of the economy

The US current account deficit reached $850-875 billion in 2006. It has exceeded annual rates of $900 billion in a couple of recent quarters, including the latest for which full data are available (the third quarter of 2006). It now accounts for about 7 percent of GDP, more than double the previous modern record of 3.4 percent in the middle 1980s (as a result of which the dollar dropped by 50 percent against the other major currencies over the three-year period 1985-87). (Edward, 2009)

Our external deficit has risen by an average of $100 billion annually over the past four years. It has climbed by an annual average of $80 billion for the past nine years. The trajectory, as well as the level of the imbalances, is clearly unsustainable.

There are a few signs that the sharp and steady rise of the US current account deficit may be leveling off. Excluding the impact of much higher prices for oil imports over the past year, the aggregate deficit is largely unchanged. Our trade imbalance with Europe has declined modestly, due to a pickup in European growth and the lagged effects of the substantial decline of the dollar against the euro in 2002-04. Our exports have risen about twice as fast as our imports over the past couple of months for the first time since the late 1980s, after the sharp dollar fall of the previous three ...