There's no denying that the United States is in an economic
slump. No matter what you label it - downturn, slowdown, or
recession - the U.S. is seeing its dollar drop in value and its job
market lagging. Gas is
at an all-time high and housing
foreclosures are abundant across the country. How did we
get to this point? And what's to blame for all of it?
Don't be quick to blame just one thing. Try four: the war in
Iraq, the housing market, credit card debt and the job
market.
It turns out that several key developments in the past few years
are causing our downward spiral. The first (and most talked
about) is the war in Iraq. In 2002, the White House estimated
the cost of the war in Iraq to be between $100 and $200
billion. Today, White House economic advisors suggest that
American taxpayers have already spent over $600 billion on the war,
three times the amount originally thought. While estimating a
war's price tag fluctuates greatly, it's clear that the U.S. has
far exceeded its original estimates. The federal government
borrowing against itself to feed the war machine has caused huge
debts to arise in the deficit and private sector. Both
contribute a great deal to the overall GDP.
For over a decade the housing market has seen record sales, and
huge equity growth. Economic strength in the country followed
the booming housing trend. Large banks and lenders made this
possible by dishing money out at such great rates that some were
calling it "free money".
Sub-prime mortgages and low finance loans made it possible for
even the most cash-strapped family to buy a house with almost no
money down. Now those sub-prime loans and low APRs are
rising, and cash-strapped families are having trouble keeping up
with the monthly payments. Eventually, foreclosures are
imminent and suddenly, banks and lenders are out billions of loaned
dollars. The banks have no choice but to foreclose on the homeowner
and put the home up for sale. But currently it is almost
impossible for a middle class American to get a home loan from a
bank or lender with a reasonable APR because of the billions
already lost in the housing collapse. There is now a surplus
of million-dollar homes on the market, and buyers are scarce.
Credit cards became bailouts for many Americans. Most
families are dipping back into their credit cards and driving up their
ongoing debt. With credit card companies generally
unregulated, finance charges rack up uncontrollable amounts of debt
that seem to never end. The only solution most Americans can
think of is to transfer their outstanding balance to another
credit card with a lower APR. Suddenly families owe
thousands in finance charges and have no leftover money to pay
their mortgages or spend as consumers.
With the collapse of the housing market and a jump in credit card
debt, the job market suffers. In December 2007, unemployment
reached 5% in the U.S., with less than 20,000 new jobs
created. Large credit card debt and foreclosures have caused
families to tighten up on the economy and for the first time in
many years, retailers reported an 8% decrease in consumer
spending. With families losing homes, loans and jobs, the
cost to support an American worker skyrockets. When compared
to other countries where the worker can do the U.S. job for much
less money, the decision (from a business standpoint) is
clear. The job market continues to decline in direct relation
to the housing and credit card problem.
Certainly the federal government is considering its options.
A recent financial stimulus package was enacted to give Americans a
tax rebate of up to $1,200. But how this stimulus package
will help or hinder is not yet known. As of right now, it is
yet another $160 billion added to the deficit. In the past,
stimulus packages have given the economy a booster shot, but the
housing market and job rate looked a lot better then. Whether
the current administration grossly overestimated its economic,
diplomatic or financial strength, the new administration certainly
has its work cut out for them next year.
