Transcript A Survey of USA

A Survey of USA:
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American Economy
Prof. Niangen Huang
American Economy
1. What is a market economy? What a role does the
federal government play in economy?
2. How does the Federal Reserve influence the volume
of bank lending? And what is open-market operation?
3. What is bond? Who can issue bonds in the United
States?
4. What is inflation? When an inflation comes what will
happen?
5. Why does America have such a large deficit? How do
you comment on the U. S. Policy of deficit financing?
General Introduction
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American economy is now the largest in the world
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Output: roughly 25% of the world total,
Population: 5% of the world total,
Natural bases for the industrial development: the great
variety of climatic conditions, soil types, and minerals
The size of labor force and capital stock.
The American capitalistic economy has developed
largely by a process of continual change. The
dominating force has not been a central plan but
individuals and associations of individuals trying to
advance their own interests by producing, buying,
and selling in predominantly free and competitive
markets.
General Introduction
General Introduction
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In American economy, privately owned and
operated
businesses,
including
farms,
produce about 85% of the total final output
of goods and services.
People in independent professional practice,
such as doctors lawyers, and accountants,
produce about 3% of the total.
Government units, including school districts,
turn out most of the rest of the country's
products and services.
General Introduction
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Business employees, including the selfemployed, such as farmers, make up the
largest proportion of the working population,
accounting for more than 75 %.
Government workers at national, state, and
local levels come next, with approximately
21%.
Employees of nonprofit organizations and
domestic servants account for most of the
others.
General Introduction
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The United States operates with a competitive market
economy. Wages, prices, the allocation of goods and
services, and the employment of resources are
generally regulated by the law of sup- ply and
demand. The market has the advantage that the
process of decision-making is decentralized and
responsive to the expressed wishes of consumers. A
desire on the part of consumers for a given product
will induce business firms to produce the product, so
long as it can be done at a profit
General Introduction
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The role of the federal government:
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The government can still exercise some control
over the market economy through taxation,
federal banking system or by other means.
Generally, the role of government in American
economy is to function as an additional part
protecting each element of the economy from
abuse, or to improve markets when they do not
function effectively.
American Agriculture
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While agriculture has a comparatively small share of
the national economy (3%) and employment (3%),
the industry nonetheless remains one of the country's
most important.
American Agriculture meets the nation's principal
domestic requirement for food and natural textile
fibers, while supplying about 20% of the value of
American exports.
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Cereal grains constitute the second most important export,
with vegetable oils and related products not far behind.
The United States is the world's leading exporter of
agricultural products.
American Agriculture
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The position of the United States in World
agricultural trade is explained by the
extraordinary productivity of U. S. farm labor.
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With perhaps half of 1% of the world agricultural
labor force, the United States produces nearly
20% of the grains, including 50% of the corn
(maize), grown in the world.
It ranks first, second, or third in the production of
corn, wheat, soybeans, oranges, meats, milk,
apples, oats, cotton, tobacco, peanuts, and edible
vegetable oils.
American Agriculture
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Agricultural activities are widely distributed regionally.
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The leading producing areas for field crops are the plains
states for wheat;
the Midwest for corn and soybeans;
the southern states for cotton, tobacco, and rice; and the
area of the pacific coast for fruits, vegetables and wheat.
The leading sources of livestock and other products are the
Midwest, Oklahoma, and Texas for cattle;
Wisconsin, New York, Minnesota, and California for dairy
products; and Arkansas, Georgia, Alabama, and North
Carolina for poultry.
American Agriculture
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Most farms are family owned, although large
corporations have made inroads into the
farming industry since World War I.
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The scale of operations has increased dramatically,
and the volume and value of capital used per farm
have risen.
While many small farms remain, production is now
dominated in many subdivisions of the industry by
large family-owned and corporate farms.
American Manufacturing
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Manufacturing is the largest sector of the American economy,
accounting for about one quarter of Gross Domestic Product
(GDP), about one quarter of the national income, and over one
fifth of the U. S. work force.
It is a highly diversified sector, producing a wide variety of
goods on a large scale.
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The United States ranks first, second, third, or fourth in the world
in the production of crude steel, cotton fabrics, radio sets,
television sets, passenger cars, commercial vehicles, synthetic
rubber, sulfuric acid, fertilizer, and aluminum.
The U. S. manufacturing sector is the largest in the world,
almost three times the size of the manufacturing sector of
Japan, the second largest producer in the world.
American Manufacturing
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Division of Manufacturing Activity:
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The leading region is the East North Central, which accounts
for over25 % of manufacturing capacity in terms of value
added by manufacture and is particularly important in the
production of motor vehicles and other transportation
equipments, nonelectrical machinery, and fabricated metals.
The Middle Atlantic region is in the second place, with almost
20% of the total value added. The region specializes in
chemicals and machinery, both electrical and nonelectrical.
The Pacific coast region, dominated by the manufacturing
activities of California, falls into the third place with about 15%
of the total value added. It is particularly important in the
production of transportation equipments, food products, and
electrical and electronic equipments.
American Manufacturing
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Division of Manufacturing Activity:
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The South Atlantic region, which specializes in textiles,
chemicals, tobacco products, and apparel, is the fourthleading region in the United States, producing well over 10%
of the total U. S. manufacturing output.
The West South Central and the East South Central regions
together produce about 15% of the total national output,
specializing in chemicals, food products, electrical and
electronic equipments, and nonelectrical machinery.
The remaining 15% of the national output is divided among
the West North Central, New England and the Mountain states
region. New England produces electrical and nonelectrical
machinery, and fabricates metal.
The West North Central States also produce machinery and
food products, while the Mountain states concentrate on food
products, primary metals and nonelectrical machinery.
American Manufacturing
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Manufacturing remains in persistent flux, with the
regional division of activity as well as the lines of
national specialization shifting constantly.
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Since the 1970"s the automobile industry, one of the most
important in the United States, has suffered from sharp
competition from Japanese producers.
On the other hand, the United States, strong for many
decades in nonelectrical machinery, has also gained a
comparative advantage in the high-technology areas of
electrical and electronic equipments.
American Finance
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The U. S. banking system is unusual in that it
consists of many banks, many of them quite small.
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For nearly 80 years the United States had no central bank,
although on occasion the Treasury performed some central
banking functions.
In 1913 the Federal Reserve System was created, a system
that remains in operation.
Today it is directed by a board of governors in Washington D.
C. Twelve regional Federal Reserve banks hold deposits for
member commercial banks, make loans to them from time
to time, and carry out the policy established by the Board of
Governors.
American Finance
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Central banks typically influence the economy by
affecting the terms on which commercial banks lend
and the amounts they lend.
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Bank lending depends upon the demand for bank credit, the
terms on which banks can lend, bank expectations about the
future, and the volume of excess bank reserves in existence.
All banks are obliged by law or custom and good business
practice to hold reserves against deposits.
In the United States the law establishes reserve
requirements. Individual banks can lend only when
they hold reserves in excess of their requirements.
American Finance
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The Federal Reserve (the Fed) can influence the
volume of bank lending by influencing the volume of
excess reserves. This it can do through its own
lending policy to banks and through "open-market
operations".
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Open-market operation consists of the purchase and sale of
securities by the Fed in the open market. When the Fed buys
securities, bank reserves are created, whereas when the Fed
sells the securities, bank reserves are destroyed.
When the Fed follows a policy of monetary ease, by allowing
bank reserves to grow rapidly, bank lending will increase and
the rate of interest will be low. On the other hand, a policy
of monetary tightness will restrict the growth of bank credit
and increase the rate of interest.
American Finance
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American financial markets today are numerous and
diverse.
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A number of them, the most famous and largest of which is
the New York Stock Exchange, handle trades in stocks and
bonds.
Stock prices often reflect the health of the economy. When
business conditions are good, stock prices tend to rise,
creating what is called a bull market. When conditions are
poor or threatening, prices drop, creating a bear market.
Because of the inflationary nature of the American economy,
every year more and more Americans invest in stocks.
Although many people who buy and sell stocks on a daily
basis lose money, most long-term investors have profited.
American Finance
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Bonds are another type of investment, which are very
popular in the United States.
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The bond itself is the borrower's written promise to repay
the loan on a certain date and also to pay a certain rate of
interest on the borrowed money.
The individual who buys bonds does not share in the
company's profits, but neither does he run the risk of losing
money if the stock goes down in value.
Corporations may issue bonds to obtain money for
expansion. State and local governments issue bonds to raise
funds for community improvements such as highways,
bridges, schools, and hospitals. Even the Federal
government borrows money from individuals.
U. S. savings bonds are available in various denominations
and are often purchased as gifts.
American Economic Problems
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American capitalism is not ideal. Weaknesses in the system
sometimes create economic inflation in the country.
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Inflation is a general rise in the prices of goods and services, such
that the real value or purchasing power of money is reduced. Three
dollars are necessary today to buy what two dollars bought
yesterday.
When inflation occurs, usually wage earners and all those on fixed
incomes stand to lose, often severely, from inflation.
If the expectation of inflation is widely shared, common Americans
may act to protect themselves by purchasing commodities
frantically, and speculators may sell their holdings of currency for a
stronger currency, thereby creating further devaluative pressure in
the country.
The result of such speculation may be instability throughout the
international monetary system, interfering with normal world trade
and causing unemployment in various countries.
American Economic Problems
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Another strange phenomenon in American economy
is her deficit financing.
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During military and economic crises the Federal government
has gone heavily into debt. But lately America has also gone
into great debt during a period of peace with a relatively
healthy economy. America borrowed $ 23 billion during
World War I, about $13 billion more during the 1930s, and $
200 billion more during World War II. By 1988 the gross
federal debt has reached $ 2 trillion. The interest on the
federal debt is over $150 billion a year. The size of the debt
and interest payments alarms many Americans.
Gross Federal Debt
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Current Amount 10/28/2005 $8,030,056,674,506.24 (The Debt To the Penny)
10/27/2005 $8,026,029,628,861.82
12/31/2004 $7,596,165,867,424.14
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Prior Fiscal Years
09/30/2005 $7,932,709,661,723.50
09/30/2004 $7,379,052,696,330.32
09/30/2003 $6,783,231,062,743.62
09/30/2002 $6,228,235,965,597.16
09/28/2001 $5,807,463,412,200.06
09/29/2000 $5,674,178,209,886.86
09/30/1999 $5,656,270,901,615.43
09/30/1998 $5,526,193,008,897.62
09/30/1997 $5,413,146,011,397.34
09/30/1996 $5,224,810,939,135.73
09/29/1995 $4,973,982,900,709.39
09/30/1994 $4,692,749,910,013.32
09/30/1993 $4,411,488,883,139.38
09/30/1992 $4,064,620,655,521.66
09/30/1991 $3,665,303,351,697.03
09/28/1990 $3,233,313,451,777.25
09/29/1989 $2,857,430,960,187.32
09/30/1988 $2,602,337,712,041.16
09/30/1987 $2,350,276,890,953.00
American Economic Problems
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When we consider her huge deficit we must be clear that the
American government owns most of the money to its own
people rather than to foreign governments or persons. These
deficits are not the result of a weak economy.
Why does the United States have such huge deficits?
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The fact is that the U. S. is committed to spending more for
defense and domestic programs than current tax revenues can
afford, even though the economy with unprecedented deficits runs
well on its way in recent years.
The huge buildup of deficits is anyway a hidden trouble to put
the nation in jeopardy of greater inflation and unemployment,
and a further loss of international competitiveness.
American Economic Problems
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Now America is facing a serious situation in world economy. She
was once the dominant exporting nation, but her competitive
superiority lost gradually in the 1970s and 1980s.
America's biggest challenge is coming from Pacific rim countries
such as Japan, South Korea, and Singapore. American
leadership and research in technology and her vast agricultural
industry are being threatened by other nations.
In 1971 the United States experienced its first trade deficit in
more than a century. By the late 1980s, her foreign trade
imbalances grew to nearly $ 200 billion a year. The trade deficit
of the United States is only one of the many symptoms of more
profound economic problems.
American Economic Problems
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“The trade deficit continued to widen in the fourth quarter and has
been a drag on growth for five straight quarters. The deficit increased
by $48.7 billion in real terms in the fourth quarter, reaching a record
$631.9 billion, and subtracted 1.73 percentage points from GDP growth.
Over all of 2004, the deficit took about 1 percentage point from real
GDP growth. The increase in the deficit in the latest quarter reflected a
9.1 percent annual rate rise in total imports. In contrast, real exports
decreased 3.9 percent. The relatively stronger performance of the U.S.
economy compared to its major trading partners, such as the eurozone
countries and Japan, continues to be a factor in the widening trade gap.
This trade profile underscores the need for our trading partners to
adopt policies that accelerate economic activity, so that the United
States is not the only engine of world growth. Greater currency
flexibility in those economies that lack flexibility would also help to
improve trade imbalances.”
----January 31, 2005
Assistant Secretary of the Office of Economic Policy
Mark J. Warshawsky
Statement for the Treasury Borrowing Advisory Committee
of the Bond Market Association
Current American Economic Status
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The economy continued to grow at a solid pace over the final
three months of 2004, bringing real GDP growth on an average
annual basis to 4.4 percent last year, up from 3.0 percent in
2003. Last week's advance report on fourth-quarter Gross
Domestic Product showed that real GDP grew at a 3.1 percent
annual rate following a 4.0 percent gain in the third quarter.
Virtually all of the slowdown in the fourth quarter reflected a
wider trade deficit. Excluding net exports, gross domestic
purchases grew by a strong 4.7 percent annualized rate in the
quarter.
----January 31, 2005
Assistant Secretary of the Office of Economic Policy
Mark J. Warshawsky
Statement for the Treasury Borrowing Advisory Committee
of the Bond Market Association