United States Economy in the 21st Century

The aspect that most characterized the United States economy starting from the second half of the 1990s was the formation of a high debt of the private sector, and in particular of households, which added to the already high net financial balances. negative effects on the public sector and the corporate sector. The aggregate aggregate debt of the US economy (resulting from the algebraic sum of the net financial balances of households, businesses and the state) in fact reached at the end of 2007 a size corresponding to approximately 350% of GDP and only in the most recent period, following the serious economic and financial crisis of 2008-2009 (see below), it has shrunk to around 300% of GDP. The growth of the aggregate debt was also reflected in the current account deficit which widened from 1.5 percentage points of GDP in 1995 to 4.3 points in 2000, reaching 6 points in 2006. Following the crisis, these values ​​decreased, stabilizing between 2010 and 2012 at around 3% of GDP. As a result, the net asset position of the United States (given by the difference between the stock of foreign assets held by residents and the stock of US assets held abroad) also underwent a progressive deterioration: already negative at the end of 1999 for a value of 724 billion dollars (7.8% of GDP), in 2011 it exceeded 4 trillion dollars (26.5% of GDP). At the end of the first decade of the 21st century, the United States became the country with the highest foreign debt in the world, fueled by a growth in the demand for resources (consumption, investments and public spending) constantly higher than domestic production. Faced with these imbalances and the consequent accumulation of external debt, the United States has maintained the ability to meet its payment commitments thanks to the availability shown by countries with current account surpluses (Japan, China, oil producing countries, countries of the Southeast Asia) to invest in US securities due to both the efficiency and innovativeness of the US financial market and the choice of some countries (first of all China, which has become the first creditor country of the United States), to accumulate reserves in dollars with the twofold objective of fueling the continued expansion of US demand for their exports and favoring the appreciation of the dollar in order to keep the exchange rate competitive. The high availability of savings in these countries (global saving glut, as defined by Federal Reserve President Ben Bernake) spilled into the US bond market in the early 21st century, allowing interest rates to remain at exceptionally low levels and indirectly fuel the growth of the housing bubble which gave rise to a severe mortgage crisis.

The debt economy and the explosion of the housing mortgage bubble. – The factors that have favored the growth of household debt in the United States are varied and complex. The processes of deregulation of the financial markets certainly had an impact which, through the development of over the counter markets and securitisations, multiplied the supply of credit for households at decreasing costs (see also the financial marketization), thanks also to low interest rates. On the ‘demand’ side, moreover, the growth in debt resulted from stagnant growth in middle class incomes, which was lower than that of consumption. The rate of household debt in relation to disposable income rose from 98 points at the beginning of 2000 to 138 at the end of 2007, and this growth was almost entirely attributable to the mortgage loan component, whose consistency increased over the same period of time from 64 to 101 percentage points. After the Fed lowered interest rates starting in 2001 to counter the risk of recession following the 9/11 attacks, the abundant liquidity and the limited demand for credit by companies (due to the high profits) have pushed banks to seek profitability with riskier investments. The disbursement of loans has increased and in particular those for the purchase of houses also granted to non-compliant subjects in terms of income flows (see subprime) under the presumption that they were backed by the continued rise of the real estate market. This resulted in huge gains for banks before the crisis, but the Fed’s credit crunch since 2005 and the drop in property prices that began in June 2006 led to the chain default of numerous borrowers and bankruptcy. financial intermediaries involved in initiating a financial crisis destined to spread worldwide.

Economic policies and crisis management. – The explosion of the speculative bubble on the US real estate market has generated effects of an unpredictable magnitude. The decline in real estate prices that began in the second half of 2006 was followed by significant financial turbulence in August 2007 which, albeit in alternating phases, lasted for about a year, only to degenerate into an unprecedented financial crisis. This crisis first manifested itself in a drastic and sudden collapse of financial products now without a market and subsequently in a sharp reduction in the debt positions of the private sector (see deleveraging) which led to a further fall in the prices of financial assets and real estate. The climate of pessimism and mistrust has also spilled over into interbank markets, which have stalled due to banks’ mistrust of lending mutual funds without collateral, causing a shortage of liquidity in the economic system in a short time. In a messy process of credit crunch and stock market crashes (the New York Stock Exchange index fell 25% between September and October 2008), some of the largest banks went bankrupt or went into receivership, and with they dozens of local banks. In the initial stages of the crisis, the burden of stabilizing the markets fell entirely on the Central Bank which adopted monetary policy measures that were exceptional in size and nature, toxic stocks and restore confidence among market participants. In particular, starting from September 2008, monetary easing measures began to be used (see quantitative easing), after the investment bank Lehman Brothers it has been allowed to fail, causing repercussions sufficient to shake the entire international financial system. However, monetary leverage alone proved insufficient to re-establish orderly conditions of functioning of the market, also because in the meantime the financial crisis had infected the real economy, also involving the manufacturing sector and in particular the automotive industry. Between the end of 2008 and the first half of 2009, the economy suffered declines of more than 6% for two consecutive quarters which caused a decline in GDP of -0.3% in 2008 and -3.1% in 2009. The consequences on the growth of the unemployed were particularly serious, which increased by almost eight million units between the end of 2007 and the end of 2009, bringing the unemployment rate to 9.3%. almost double the level of just two years earlier. The worsening of the crisis has pushed the administration of President Bush to abandon the attitude of reluctance towards a direct intervention in the economy and to allocate with the Emergency economic stabilization plan, aid for over 700 billion dollars in order to support rescue and cleanup operations from the toxic balance sheets of the banks involved in the crisis to be implemented through the disputed Troubled assets relief program . With the election of Barack Obama in January 2009, however, economic policy took on a decidedly interventionist imprint, focusing in particular on objectives of distributive rebalancing in favor of the middle classes, fighting unemployment and strengthening the discipline of financial markets. In February 2009, the American recovery and reinvestment act was enacted(ARRA), a 787 billion dollar plan designed to counter the adverse effects of the recession through tax breaks in favor of certain media and unemployment benefits and to support the long-term development prospects of the economy through infrastructure investments in the education system, in the energy sector and in the green economy. At the same time, the measures envisaged by the Troubled assets relief Ppan are resumed and integrated with other measures, including the Public-private partnership investment program, a fund with mixed public and private capital that has extended the guarantee system in favor of the banking sector up to 1000 billion dollars. In 2010, the law revising the rules of the banking and financial system was approved with which limits were set on the size of banks and their ability to make risky investments and the possibility for the central bank to take control of large companies is envisaged. financial institutions in crisis and, if necessary, to detect them (see Dodd-Frank act In the same year, an important reform of the health system was carried out, intended to ensure mutual coverage for the 32 million citizens without assistance because they are not part of the public Medicaid program. The defeat of the Democrats in the mid-term elections of November 2010, however, removed control of the Chamber from the president and from that moment numerous difficulties arose for the approval of financial policies and the raising of the ‘ceiling’ on public debt (the so-called debt ceiling i.e. the maximum amount of federal debt, established from time to time by Congress, the modification of which requires the majority vote of both chambers), due to the intransigent position taken by Republican deputies linked to the Tea party movement, strongly opposed to increased tax burden, which blocked the implementation of Barack Obama’s reform program.

The effects of public intervention and development prospects. – The bailout policies of the financial system and fiscal stimulus have enabled the US economy to emerge from the recession relatively quickly. GDP growth has continued uninterrupted since the third quarter of 2009: at the beginning of 2011 the economy had already fully recovered from the fall in production of 2008-2009 and in 2012 recorded a further increase of 2.2%. The economic recovery was also supported by successive waves of quantitative easing which, however, also led to a real explosion of the assets components of the Fed’s balance sheet (whose size reached 19% of GDP in mid-2012., compared to 7% four years earlier) consisting largely of securities of dubious quality (such as i Mortgage backed securities, v. MBS) given as collateral by banks and government agencies. The fiscal stimulus measures also led to very high budget deficits, which in the period 2009-2012 reached an average of 10% of GDP (even reaching 13% in 2009) causing the very rapid growth of the stock of public debt. The latter has almost doubled in six years, reaching a value of over $ 16.4 trillion at the end of 2012 (higher than the ceiling authorized by Congress) equal to more than 107% of GDP. This growth in public debt was matched by a gradual absorption of the debt positions of the private sector which after reaching a size corresponding to around 300% in 2007, GDP began to gradually decrease, falling to 250% in 2012. This reduction is mainly due to the correction process of the high household debt which fell by about 17 percentage points in relation to the disposable income due, above all, to the insolvency of the holders of real estate mortgages. In fact, there has been a sort of nationalization of private debt, which through the expansion of public spending has made it possible to support the recovery of the economy and at the same time allow the gradual absorption of the debt positions of the private sector. However, the economic recovery has not generated fully satisfactory results on the labor market. At the end of 2012, the number of official unemployed was 12.3 million (equivalent to an unemployment rate of 7.9%), down from the peak reached during the most acute phases of the crisis, but still a long way from pre-crisis levels. This improvement, moreover, is due more to the reduction in the employment rate (63.4% against 67% pre-crisis) and therefore to the growth in the number of ‘discouraged’ workers who have stopped actively seeking employment, than to an effective recovery of the labor market. Furthermore, despite the massive use of quantitative easing policies to stimulate investment and employment (in September 2012, the Central Bank announced a plan to purchase securitized securities for $ 40 billion a month until a clear improvement in the labor market) the new liquidity created remained ‘trapped’ in the monetary circuits with limited effects on the real economy. Consequently, the growth prospects of the US economy remain largely linked to the expansion of public demand, which in turn is conditioned by the delicate political issue of approving the public debt ceiling. In fact, in January 2013, a compromise in extremis between Republicans and Democrats averted the risk of a fiscal precipice (fiscal cliff) or the massive cuts in public spending and increases in tax rates that are triggered automatically if the budget ceiling is exceeded, but the polarization of the positions of the two political parties on opposite orientations regarding stimulus policies the compromise reached in the future.