Market Meltdown - Getting the US Economy Back on Track

http://www.americanprogress.org/issues/2008/01/market_meltdown.html

Since the beginning of the current business cycle in early 2001, family incomes in the United States have not risen, yet the costs for important consumer items such as housing, health care, transportation, energy, and food all climbed at often breathtaking speeds. To afford these necessities, families piled on record amounts of debt relative to their income—at a rate more than four times faster than that in the 1990s.

Families, though, were not the only ones going deeper into debt. The federal government ran up large budget deficits due to massive tax cuts for the rich and a spending spree for an ill-designed Medicare prescription drug benefit and two wars in Afghanistan and Iraq. Since March 2001, foreign investors financed close to 80 percent of the federal budget deficit.

More importantly, these large capital inflows financed a massive U.S. trade deficit that still remains at an unsustainable 5 percent of gross domestic product. To finance this deficit, the U.S. economy borrowed heavily overseas, selling everything to foreign investors, including home mortgages.

The result: a vicious cycle of debt, with foreign investors fueling a housing market boom that required households to borrow money that foreigners were willing to borrow.

This process is now going into reverse. Stock market investors are selling off shares tied however tenuously to the U.S. housing market, thus fueling the financial markets downturn. This sell off is also increasing worries about a broader credit crunch that could lead to further deterioration in the U.S. housing market.

The largest drawback of the debt boom was that it let U.S. policymakers get away with not addressing the country's underlying economic problems. The fundamental weaknesses of the U.S. economy—a weak labor market, large budget deficits, and massive trade deficits, and an unsustainable housing boom—were masked by record amounts of debt, allowing the federal government to continuously ignore these problems. Center for American Progress Senior Fellow Christian Weller explains the underlying issues and the way forward in ASK THE EXPERT, the new video feature from CAP.

www.AMERICANPROGRESS.org

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News & Politics

Tags:

• economy
• market
• recession
• dollar
• wall
• street
• stimulus
• subprime
• debt
• credit
• progressive
• commentary
• analysis
• docum

[yogiudo]

Allowing some committee to determine who should get the money is what got us into this mess in the first place. The choice of who and how money is spent needs to be determined by the market. The only way to do that is gold, silver and voluntary contract.

[Bptsfinest]

Obama put us back on track ha to all u McCains hahahaha

[Stan1208]

Obama will destroy the EVIL rich and give their money to us po folks.

Have you trusted in Barack Obama as your personal saviour?

[lablvr55]

Debt has been the number 1 industry in the USA for quite some time now. Not a good thing and it is now apparent to everyone.

[ambop56]

Before we give money to Americans to spend in an attempt to boost the economy, shouldn't we teach them how to spend their money responsibly? Solving the problem of middle class debt won't be effectuated if we give money to irresponsible spenders who, given a tax rebate, are only going to be more enticed to delve further into debt? How does this help the big picture?

[Ibssa9]

The U.S. economy has had chances to collapse many times during past 10 years. And it hasn't. The economic crises after the 9/11 attacks were considerably worse than the current situation, and we still pulled through. The American economy *can't* collapse. That would mean failure world-wide, due to America's reach. London, Asian Tigers, European Union would collapse. King Dollar will find his way back on track, don't you worry.

[Ibssa9]

What? Of course its value is different, times are changing, dipshit. That's like saying "OH MY GOD THE RUSSIAN ECONOMY ISNT AS STRONG AS IT USED TO BE 30 YEARS AGO IN THE USSR!!!!" Of course it isn't. That's how economies work: they fluctuate. Our debt is only 8 trillion dollars, which is only about 70% of our GDP. Japan has a debt of over 150% of their GDP, so why aren't you complaining about them? Oh yeah, it's because America is king and there's nothing you can do about it but bitch.

[frankxxx]

At 1:14 you state that had the Administration paid attention they would have helped to boost wages so that the middle class could cover their debt. This does not make sense to me. The only wage lever the Admin has is the minimum wage. I presume the middle class is not a minimum wage family so had the Admin raised the minimum wage I do not see this as helping the middle class. How do you propose the Admin would have raised middle class wages?

[leevi1234]

How can they revive the dollar? It's value is 1/100 what it was a century ago. And your debt is 88 trilon dollars. And you pay intrest to banks for your own currency. And you have to borrow money to pay the intrest of the debts you have and even that is not enough.

So how will you revive the dollar.

[arnejess]

But not the dollar.. It to late, the US-economy is about to collapse