Ivan Canas: 21 Century Great Depression causes and what to do. Please read the more info section.

21 Century Great Depression causes and what to do.

Causes:
The snowball spiral caused by debt started the decline in the American economy.

Concerns in the US include national and external debt, entitlement liabilities for retiring baby boomers who have already begun withdrawing from their Social Security accounts, corporate debt, mortgage debt, a low savings rate, falling house prices, a falling currency, and a large current account deficit. As of June 2008, the gross US external debt was over $13 trillion, the most external debt of all countries in the world. The 2007 estimate of the United States public debt was 65% of GDP. As of September 2008, the total US federal debt was approximately $9.7 trillion, about $31,700 per capita. Including unfunded Medicaid, Social Security, Medicare, and similar promised obligations, the government liabilities rises to a total of $59.1 trillion, or $516,348 per household.

The primary economic concerns have centred on: high national debt ($9 trillion), high corporate debt ($9 trillion), high mortgage debt (over $10 trillion as of 2005 year-end), high unfunded Medicare liability ($30 trillion), high unfunded Social Security liability ($12 trillion), high external debt (amount owed to foreign lenders), high trade deficits, and a serious deterioration in the United States net international investment position (NIIP) (-24% of GDP). In 2006, the US economy had its lowest saving rate since 1933. These issues have raised concerns among economists and national politicians.

What to do

In 1933, when the danger of recession appeared most serious, government sought to strengthen the economy by spending heavily itself or cutting taxes so that consumers would spend more, and by fostering rapid growth in the money supply, which also encouraged more spending. In the 1970s, economic woes brought on by the costs of the Vietnam conflict, major price increases, particularly for energy, created a strong fear of inflation. As a result, government leaders came to concentrate more on controlling inflation than on combating recession by limiting spending, resisting tax cuts, and reining in growth in the money supply.

The US also has one of the most highly regulated banking environments in the world; HOWEVER, MANY OF THE REGULATIONS ARE NOT SAFETY AND SOUNDNESS RELATED, but are instead focused on privacy, disclosure, fraud prevention, anti-money laundering, anti-terrorism, anti-usury lending, and promoting lending to lower-income segments.

Of major concern is the fact that the magnitude of the NIIP (or net external debt)is a bit large. Fueled by the sizable trade deficit, the external debt is so large that many wonder if the trade situation can be sustained in the long term. Complicating the matter is that many of America's trading partners, such as China, depend for much of their entire economy on exports, and especially exports to America. Many controversies exist about the current trade and external debt situation, and it is arguable whether anyone understands how these dynamics will play out in an historically unprecedented floating exchange rate system. While various aspects of the US economic profile have precedents in the situations of other countries (notably government debt as a percentage of GDP), the sheer size of the US, and the integral role of the US economy in the overall global economic environment, create considerable uncertainty about the future.

This enormous inflow of capital from China is one of the root causes of the financial crisis engulfing the US as of September 2008: China has been buying huge quantities of dollar assets in order to keep its currency undervalued and its export economy humming, which has caused US interest rates and saving rates to stay artificially low for too long. These low interests, in turn, created the housing bubble (when interests are low, people can afford more expensive houses while keeping their monthly mortgage payments the same), whose collapse has caused the recent turmoil in the financial markets worldwide. Leading economists such as Larry Summers (former Treasury Secretary under Clinton) and Paul Krugman had been warning about this pernicious cycle since the mid-2000s.

An Up dated version of the New Deal programmes of Franklin D. Roosevelt, is URGENTLY NEEDED.

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[spoiledbrat1440001]

Thanks, Bush, for the greatest single day wealth transfer in American history.

[Gauts26]

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