5 October 2015 by Sigrid Brevik Wangsness. The largest economy in the world with a major impact on...

5 October 2015by

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 Treasury billsLeverage InterestHomeowners BrokerMortgage lender AAA ratingInvestment banker Prices plummetCredit Default Swap 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 FedoHead of the Fed”: Janet YellenoOrganizationoAppointmentoKey powers: Monetary Policy

Banking Regulations

Wall StreetoNYSE, AMEX, NASDAQoBanks, insurance companies, rating agencies, brokers, asset managers etc.