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5 October 2015 by Sigrid Brevik Wangsness 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? Collapse of the housing market The property bubble burst: House prices dropped dramatically Sub-prime loans = risky loans (mortgage loans for borrowers with a poor credit history) 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 To default Leverage Homeowners Mortgage lender Investment banker Credit Default Swap Treasury bills Interest Broker AAA rating Prices plummet Foreclose Speculation and excessive risks on the stock markets Lack of trust Free fall of share prices Insufficient regulatory system Deregulation encouraged “gambling” Repeal of Glass-Steagall Act (1999) 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? 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” Part –nationalization of American banks Cooperation between major economies: Summits (G20), co-ordinated efforts The IMF National Deficit/ Debt USD 18.5 trillion. How serious is that? Trade Deficit Current-account balance: -$429bn (Q2) -2.6% of GDP in 2015 (forecast) Budget Deficit Budget balance: -2.6% of GDP in 2015 (forecast) GDP: +2.7% growth in Q2, 2015 Forecast for 2015: +2.4% Inflation: +0.2% (Aug. 2015) Forecast for 2015: +0.4% Unemployment: 5.1% (Aug. 2015) (See article in the Comp.) The Primary Sector The Secondary Sector The Tertiary Sector The Fed o Head of the Fed”: Janet Yellen o Organization o Appointment o Key powers: Monetary Policy Banking Regulations Wall Street o NYSE, AMEX, NASDAQ o Banks, insurance companies, rating agencies, brokers, asset managers etc.
