Question: What is the “current macroeconomic situation” in the U.S. (e.g. is the U.S. economy currently concerned about unemployment, inflation, recession, etc.)? What fiscal policies and monetary policies would be appropriate at this time? Write your individual answers to the questions listed above together in essay format (minumum of 300 words combined in APA style), using correct economic terms covered in the discussions. If you only write 300 words, you probably won’t be able to fully answer the questions. Use the APA Template in Doc Sharing as a guide. You will also find the grading rubric for this assignment in Doc Sharing. Key concepts to include in your paper–data trends on unemployment, inflation, GDP growth, expansionary fiscal policy tools, FOMC, easy money policy tools and other terms from this class. You must use at least one article. Note: The textbook is not an article and cannot be the only source for the assignments. Use the DeVry Library as a resource for finding your references.
The United States macroeconomic situation is one of manufactured uncertainty. The US economy is at the end of the greatest economic experimentation of our lifetime. Financial leaders are grappling with how to return to self-sustaining economic performance, in hopes that the economy can perform without artificial stimulation. The 2007-2008 economic malaise resulted from a number of market manipulations at several key market areas. The US opted for economic stimulation to combat the simultaneous collapse of several financial and business institutions, a collapse in stock market and real property values, and high unemployment over 10% due to layoffs of millions of workers (Lenzner, 2012). The US faced a ‘perfect storm’ of deflating prices and values of assets, reductions in demand for workers, and a collapse of a number of financial institutions. The most lingering economic action was FOMC selling securities at absurdly high quantities to drive US Treasury interest rates down to near zero. This economic tool has never been used to this extent for this long, and removing the easy money from the economy may not be easy. Using this economic expansion tool allowed for debts to be refinanced, new projects to be undertaken, and both businesses and households to restructure their finances. Those rates have remained artificially low for years. The Federal Reserve has been trying for more than a year to raise rates, to remove the artificial sweetener in the economic coffee. They have tried with public notices, what some would call ‘trial balloons’, each of which sent negative shock waves through the financial markets. Their recent public policy disclosures, suggesting September 2015 as the start of a series of interest rate hikes, have been met with less resistance. Unemployment rates are now measured at half of the 2010 highs of 10% (Trading Economics, 2015). While the rate is now lower, it is lower for several reasons not normally mentioned. First, the definition of unemployed was revised to extend the period of unemployment duration. (Hampson, 2010). Second, although unemployment benefits were extended, in some cases for nearly two years (99 weeks), people have had to return to whatever work they could find. Thirdly, some ‘long term unemployed’ are now deemed unnecessary to the formula to determine unemployment, and are removed from consideration, reducing the ‘real’ unemployment rate. It seems when the statistics aren’t telling a good story, changing how they are measured will do.
Businesses and households able to do so have restructured their finances with this lower cost debt. Home sales and values have returned to pre-malaise levels, and stock market investors have likely regained the declines in their portfolios.
These steps have been taken in similar measure by many other countries seeking to stimulate their economies. Japan has been doing this for decades and pledges to continue, and China only recently saw the folly in artificially stimulating its stock market with easy credit. The United States has used interest rate policy for decades to control inflation. Inflation of near 2% is considered normal, and we are not at that level yet, which might suggest a delay in rate hikes may be appropriate (Coin News, 2015).
References Lenzner, R. “The 2008 Meltdown And Where The Blame Falls”, Forbes Magazine, June 2, 2012. Retrieved 8/15/15 from: http://www.forbes.com/sites/robertlenzner/2012/06/02/the-2008-meltdown-and-where-the-blame-falls/ Trading Economics, United States Unemployment Rate, 2005-2015. Retrieved 8-15-15 from: http://www.tradingeconomics.com/united-states/unemployment-rate Hampson, R., “U. S. Changes how It measures long-term unemployment”, USA Today, 12-28-10. Retrieved 8-15-15 from: http://usatoday30.usatoday.com/news/nation/2010-12-28-1Ajobless28_ST_N.htm Coin News Media Group LLC, US Inflation Calculator, retrieved 8-15-15 from: http://www.usinflationcalculator.com/inflation/current-inflation-rates/