One of the most important problems of the modern American economy are problems with US dollar. When increasing emissions in the U.S., monetary authorities in the U.S transfer dollar inflation to the national markets of developing countries, who are forced to issue the national currency to buy dollars (a typical example is Russia). At the same time, the U.S. tried to increase the competitiveness of U.S. goods and reduce the huge trade deficit, primarily with China (232.5 billion in 2006). However, attempts to exert pressure on China to revalue the yuan were not particularly successful, and China continued to overwhelm the country with cheap goods. (Amadeo 2011)
Also it is important to mention that American dollar has lost one of the most important qualities characteristic of the world currency – the stability. Natural response to these trends is the global dollar inflation worldwide, which is expressed mainly in the growth of prices for raw materials, oil, gold, grain, etc. Also, due to the instability of the U.S. dollar, many countries tried to reduce the share of its foreign currency reserves in U.S. dollars (in particular, it was declared by China), which further pushed the U.S. currency fall.
So, we can say that there were few reasons for the decline of the U.S. economy and the economic crisis.
1. First of all, the emergence of surplus funds in the U.S. and decrease of the possibility of dollar expansion to other countries could lead to overheating of the economy and, consequently, into a recession.
2. The emergence and development of more cost-effective information sector of the economy, which is characterized by large investments and significantly higher rates of income growth, has led to the fact that information economy in the credit market has become much more attractive, became the first number. Free capital began to flow into more profitable media sector, and country’s industry became less profitable and less attractive to investing. Steady decline in profitability of the traditional, primarily industrial, sectors of the economy and the consequences of this decline are the main trigger of the recession.
3. The next cause of the crisis is the enormous growth of e-commerce (bubble), compared with growth of the industry, causing an increase in consumption. In fact, the continued growth of the information sector of the economy triggered a decline in the proportion of savings of U.S. citizens, they began to spend more and thereby increased their debt obligations.
4. The next cause of the crisis was inflation, caused by increasing interest rates and appreciation of the loans, which devalued the shares of all companies.
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Henderson, N. (January 22, 2004). “Economists Say Recession Started in 2000”¯. The Washington Post.
“Percent Change in Real Gross Domestic Product (Quarterly)”¯. National Income and Product Accounts Table. Bureau of Economic Analysis. Web. Accessed 3 June 2011
Weller, Christian E. “The U.S. Economy in Review: 2006”¯. Center for American progress, 2006. Web. Accessed 3 June 2011
“United States economy recession”¯. Recession.org. Web. Accessed 3 June 2011