U.S Economy - Ah, Makes Sense!

Aug 29, 2010 By Sri
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You have probably read about and heard people talk anxiously about the recession, unemployment, foreclosures and so on. Would you like to get a "simple" explanation of what's going on?

Recession: Never live beyond your means.

In the mid-2000's, lots of people bought houses that they could not afford as banks were attracting them with low interest rates on big loans (Interest is the yearly charge for borrowing a large sum of money). When the interest rates went up after the first year, people could not afford to pay and had to lose their houses (foreclosure).

The banks started collapsing because no one was repaying their loans. Companies that relied on loans from the banks to grow, started letting go of their employees. When people who lost jobs stopped buying cars, the auto industry started collapsing. The rest of the economy followed.

This resulted in the Great Recession, a sharp reduction in the Gross Domestic Product (GDP), which is the total value of goods and services produced every year by American workers.

Stimulus and Recovery:  It's not that easy

The Obama administration sprung into action with $700 billion to help the banks stabilize. In addition, it created a $787 billion package to create new projects and more jobs. The thinking was that if more people had jobs, they could afford to buy more goods and services and the economy would recover.

The economy did recover in 2009 and companies started to hire more people, but recently it has slowed down again.

Give me a job! Companies need to be less afraid

The unemployment rate is 9.5% which means approximately one out of 10 people in the United States who want a job don't have one. Many companies, both big and small, have money to hire people but they want to save for the stormy days. They need to realize that only if they hire more, people can afford to buy the goods they make!

Room for Optimism: We shall overcome!

Never underestimate the power of the United States to learn from its mistakes and bounce back to become even stronger. A deep wound takes time to heal. The economy is on a slow but steady path to recovery, even though there will be bumps along the way.

Secondly, countries like China and India continue to grow at a much faster pace. As these countries buy U.S made goods, it will help the United States.

Lessons for us: Stay optimistic and patient, but don't be greedy. Save money, and never spend more than what you can afford.