Transcript US Economy II

17 October 2016
by
Sigrid Brevik Wangsness
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The largest economy in the world with a
major impact on the global economy
Until October 2008 an economic superpower
– did the financial crisis change that?
A significant characteristic of the US economy
is its resilience, i.e. its ability to bounce back
after slowdowns. Has this happened again?
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Collapse of the housing market
The property bubble burst: House prices
dropped dramatically
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Sub-prime loans
= risky loans (mortgage loans for borrowers
with a poor credit history)
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The banking crisis
Banks had granted too many risky loans
Bad debts – huge losses
Complicated financial instruments:
MBSs (mortgage-backed securities)
CDOs (collateralized debt obligations)
 “Credit crunch”
Vocabulary
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To default
Leverage
Homeowners
Mortgage lender
Investment banker
Credit Default Swap
Treasury bills
Interest
Broker
AAA rating
Prices plummet
Foreclose
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Speculation and excessive risks on the stock
markets
Lack of trust
Free fall of share prices
Insufficient regulatory system
Deregulation encouraged “gambling”.
Repeal (official end) of Glass-Steagall Act in
1999.
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The Federal Reserve System (the Fed)
(= the US central bank)
Too low interest for too long? Too easy to
borrow from the Fed?
Did it therefore indirectly encourage
speculation?
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US government intervention in the economy
Rescue (bail-out) packages
The role of the Federal Reserve System
"Head of the Fed” at the time:
Ben Bernanke
“Quantitative easing”
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Part –nationalization of American banks
Cooperation between major economies:
Summits (G20), co-ordinated efforts
The IMF
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National Debt
USD 19.7 trillion ($19,698,178,798,454.78).
Trade Deficit
Current-account balance: -$488bn (Q2)
-2.6% of GDP in 2016 (forecast)
Budget Deficit
Budget balance: -3.2% of GDP in 2016 (forecast)
Income inequality
The gap is widening
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GDP:
+1.3% growth in Q2, 2016
Forecast for 2016: +1.5%
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Inflation: +1.1% (Aug. 2016)
Forecast for 2016: +1.3%
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Unemployment: 4.9% (Aug. 2016)
(See article in the Comp.)
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The Primary Sector
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The Secondary Sector
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The Tertiary Sector
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The Fed
o Head of the Fed”: Janet Yellen
o Organization
o Appointment
o Key powers: Monetary Policy
Banking Regulations
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Wall Street
o NYSE, AMEX, NASDAQ
o Banks, insurance companies,
rating agencies, brokers, asset
managers etc.
Four major structural challenges:
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1. Boosting productivity growth
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2. Combating rising inequality
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3. Ensuring that everyone who wants a job
can get one
4. Building a resilient economy that is primed
for future growth
The Economist, October 8th, 2016