The US problem differs from the European one
There is good news and not so good news for the American economy. Some authorities, including the chairman of the Federal Reserve Bank, Ben Bernanke, believe that if Congress does not act as quickly as possible, a new recession worse than the first one is inevitable. In addition, the U.S. Bureau of Economic Analysis reports that the American economy slowed sharply in the second quarter and that this is the weakest recovery of the postwar period. However, on the flip side, there are some optimistic economists who say that the American economy is coming back. Whom should we believe?
The widespread drought over more than half of the United States reminds one of the difficult years just before the Great Depression in 1929. Author John Steinbeck’s famous novel “Grapes of Wrath” explains well how that drought over the eastern side of the country created a serious wave of poverty and forced common farmers to migrate to California for their survival. Immediately after that disaster, which pushed basic food prices up, the Great Depression brought unemployment and poverty to big cities as well.
For elderly people who remember those difficult days and the scholars who examine the years before and after the Depression, it is very normal to be a little bit uneasy about the future of the American economy. However, coincidences do not necessarily make history repeat itself. This recent drought will, of course, increase food prices in the U.S. and most probably all over the world. But this does not mean that it will surely trigger a new recession. The probable reasons for a new recessionary period, if it happens, will be more serious and more complex than food price increases.
Let’s now begin to discuss the optimistic ideas for the future of the American economy. First of all, household consumption slowed for obvious reasons and the household debt-to-income ratio also dropped, while banks were forced to write off debts and raise equity. The weaker dollar, meanwhile, gave dynamism to exports, and high oil prices reduced net energy imports and, as a result, the foreign trade deficit shrank.
Before becoming pessimistic or optimistic for a national economy, it is better to examine the negative and positive elements together and try to reach a net result. Unemployment and poverty are still the biggest problems in the U.S., and the sluggish growth obviously prevents effecting quick solutions to those problems.
These days, a dreadful new piece of jargon, “the fiscal cliff,” has become a very popular term among economists, indicating the urgency of solving the budget impasse in Congress. Bernanke recently pointed out that risk. If the planned tax cuts and public spending increases cannot be realized because of that impasse, a new recession might begin. In addition, the euro crisis is still a serious threat to the U.S. economy.
After mentioning all those negative elements, is it possible to be optimistic about the future of the American economy? Yes, it is possible. First of all, as seen several times, especially after World War II, the U.S. economy repaired itself rather quickly following serious crises. Second, most American people believe that Congress will not push the economy over the so-called “fiscal cliff” and will act to solve the budget impasse at the last minute. It is politically necessary not only for the Democrats, but also for the Republicans on the eve of the coming presidential elections.
And this good news just in: Congressional leaders reached a budget deal.
Some last notes: The American problem is quite separate from the European one. Contrary to the eurozone, several monetary and fiscal authorities do not exist in the U.S., and it is hoped that U.S. policy-makers will try to resolve the country’s long-term debt problem without resorting to sharp tax increases and spending cuts.