The global financial crisis started to show its effect in the middle of 2007 and into 2008 because of this the world stock market had fallen and large financial institution had collapsed and been bought out and the government in the wealthier nation had to come up with rescue packages to bailout their financial system.

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The financial crisis had been hit due to reckless and not proper lending practices by the United States which resulted in deregulation and securitization in real estate, mortgages in United States. The US backed securities were marketed all around the world. A broad base credit boom led a global speculative bubble in real estate which led to risky lending practices and the financial situation were made more difficult by sharp increase in oil prices. So the immerging subprime loan losses in 2007, it began the crisis and it exposed all risky loans and over hiked assets. As the Lehman brother crashed in September 15 2008, this caused the started of US crisis which led to many job cuts, bankrupts, over inflation, decline in interest rate.

The global economic crisis hit the world mainly due to the credit crunch in the America and over lending which led to bankruptcy of many top banks in the United States and which caused high unemployment and which lowered the GDP of America

This affected the United States and the world in a very bad way as there were increase pay cuts and job cuts everywhere around the America.

United States GDP growth rate

Now the economy in United States is the world largest nominal economy. Its nominal GDP is estimated at $14.2 trillion in 2009 which is about 3 times more than that of the world 2nd largest national economy Japan and its GDP by PPP (purchasing power parity) is almost twice of that of China. So this shows that US economy maintains a very high level of output per person. This US GDP per capita is $46,442 in 2009 is ranked around number 10 in the world.

Decline in GDP of America in 2009

America’s GDP declined in 2009 due to negative contribution from the non residential fixed investment, exports, and private investment.

The GDP of United States in the last quarter of the year was expanded at the annual rate of 5.6%. The gross domestic product of United States is 14204 billion dollars of the world economy it has the highest GDP compare to other countries in the world. The economy is market- oriented where most of the decision our taken by business firm or private individuals.

Country: United States

Interest Rate0.25%

Growth Rate5.60%

Inflation Rate2.10%

Jobless Rate9.70%

Current Account-116

Exchange Rate81.0730

Despite they have such a huge growth in the GDP, but they are still weak. They expanded in the fourth quarter by an annual rate of 5.9% giving an idea that the strongest and the largest economy in the world is recovering, but the growth was mainly from inventory rebuilding.

Years over years, the economy of USA has grew up just 0.1% which is not that strong and keeping in mind about the last 3 months of 2008 USA output got worst by 1.9%. The expansion in the 4th quarter of 2009 may not last in 2010 as the major portion of the growth GDP has come from inventory rebuilding i.e. in 2009 the GDP had gone to 5.9% but 3.9 % was just from inventory rebuilding and once the demand is equilibrium the production is likely to slow down.

The US economy has lost 7.3 million jobs after the recession which had began in December 2007 and the promise which was made by politician to increase employment did not work out and they had the highest unemployment rate after 26 years.

The things got even worst when there was a low rate of interest which was disappointing the investors to deposit money in USA. The US economy will face a slowdown when the FED will exit from his unconventional policy easing, and they are required to increase rate to battle inflation.

The inflation rate in United States

In February 2010 the inflation rate of USA was 2.1%. It refers to the rise in price against the purchasing power. The measure of inflation can be done by consumer price index (CPI) and the GDP deflator which measure the whole of the economy.


Interest rate

Growth rate

Inflation rate

Jobless rate

Current account

Exchange rate

United states




9.70 %



The rise of 0.1% in consumer price index in USA

In March the cost of living had gone up, but the prices of food and energy were surprisingly unchanged indicating that the domestic inflation was recovering. Excluding the food and fuel the core rate was steady after the rise of CPI to 0.1% in February, reflecting cheaper clothing and housing. One of the reason why Federal Reserve policy makers kept the benchmark to interest rate zero because the absence of price pressure so that they can improve the economy.

US Inflation After the Recession of 2007-2009

To fight back the slowdown of the economy and credit crisis of 2007- 2009, the federal reserve had taken some action which had not been taken for last 50 years, the interest rates were cut down to nearly 0 and they enlarged their balance sheets by purchasing securities like treasury bonds. In the previous topic of monetary policy we had discussed the action taken by Federal Reserve.

There are many economists who believe that there is a relation between money supply and changes in the price level that is inflation, but as the relation between money and inflation is not accurate, few economists says that increase in money supply will not lead to increase in prices.

Many economists don’t care about the short run they believe that when the economy is below its full capacity the monetary expansion will not result in inflation, but as they recover inflation is likely to increase.

The economy is 6% below is capacity in may 2009, in September 2008 after the collapsed of Lehman brothers the Fed had enlarged their balance sheet, doubling the money supply or we can say balance of trade in approximately 3 months as to control the problem of credit crisis they purchased assets. The expansion has only led to reasonable expansion as there is a very little effect on inflation.


According to the intercontinental exchange (ICE) the United States dollar stands at 81.07. in march the united states dollar index were trading at 80.3620 that means from the previous month dollar has been appreciated by .88%. Last year that is in 2009 the dollar was trading at 85.4300 and that has been depreciated by 5.10 % over that past 12 months. The US dollar is a benchmark for the other international currencies as it has to measure it performance with lots of countries.

The dollar of United States has gone up significantly against the euro if we see in the last few months. We may believe that the greenback i.e. the US dollar will recover in long term but after some time it may lose its position.

The recent fluctuation in US dollar and EUR has lots to do with the growth and interest rate in the area of US and euro. Firstly, the growth rate of euro was just 0.1%, while the United States grew up to 5.7% in the fourth quarter of 2009. The second thing is the Federal Reserve had signaled an exit strategy. Third, the fed surprisingly raised the discount rate from 25bp to 75 bp in the financial market. They are making the foreign investors more positive about the gains in the United States dollar holdings.

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On the other side the US labour market is weak and will recover after September 2010 as the fiscal and monetary fades away. The fiscal instability of Greece, Spain and Ireland and pushed the euro to fresh new lows. A long time ago investors were concern about the rising fiscal deficient and national debt in the US which was depreciating the US dollar. Sooner or later the US will take the center stage of currency market due to the structural imbalance.


Money supply of United States

M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency.

M1: The total of all physical currency part of bank reserves + the amount in demand accounts (“checking” or “current” accounts).

M2: M1 + most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).

M3: M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of Eurodollars and repurchase agreements.

In 2005 the Federal Reserve had announced that they would cease publishing of M3 and in March 2006 they explained that M3 did not convey any additional information about the economic activity compared to M2 and that M3 has done nothing in the process of monetary policy for few years. Some of the congress man has claimed that M3 is the best mode in creating new money and credit. If we use our sense we can say that by generating more amount of money the value of each dollar will depreciate.


The Federal Reserve on November 4, 2009 as reported that the US dollar monetary base or in UK term we can say Narrow money is $1,999,897,000,000. This is an increase of 142% in just 2 years. The monetary base which means the amount of money which is there in the economy is only 1 component of money supply, the M2 is the widest money supply which has increase approx. from $7.41 trillion to $8.36 trillion from November 2007 to October 2009 that means it has increase to nearly 12.9%

Purchasing power

The purchasing power of US dollar increase or decreased until the federal act of 1913 came into existence. From the time of 1913 the purchasing power of dollar has deprecated significantly “$1 in 1913 has the same buying power as $21.89 in 2010”. It has lost nearly 95% of its value since the formation of Federal Reserve.

Reserve currency

The United States dollar is the most widely used currency all around the world and that’s why it has been held as a reserve currency. In the last decades, average of the two thirds of the foreign exchange reserve of the countries has been in US dollars. This is why the reserve currency status is said to be the US dollar. It makes it easier to run higher trade deficit with a later economic impact.


Unemployment occurs when a person is available for work but is currently without work.

Types of unemployment

frictional unemployment :- this unemployment is caused by people moving between jobs e.g. graduates changing jobs

structural unemployment :- this is caused due to mismatch of skills in the market. It is caused by

(a). occupation immobility

(b). geographical immobility

©. Technological change

(d). structural change in the economy

3. Classical unemployment: – this is caused when wages in a competitive market is pushed above the equilibrium this is also called disequilibrium unemployment this is caused by minimum wages or trade unions.

4. Demand deficient or “cyclical unemployment:- this occurs when there is not enough demand to employ all those who wants to work. It is a type that Keynesian economist focused on. This is also called cyclical unemployment because it varies with trade cycle.

5. Natural rate of unemployment: – this occurs when there is low level of unemployment which economies faces a stable inflation rate.



Unemployment in USA

The main problem of unemployment in USA after global financial crisis was outsourcing. The outsourcing of American job to other countries has become a problem of a classic proportion a report shown on CNN documented that approx. 48,000 US job were outsource from January to march 2008 to other countries or were publicly announced as been schedule for outsourcing. It is how ever unclear that how many accounting, engg. , technical supports have moved offshore in recent years. For eg. If you have a customer service question for Toshiba computer u will be directed to an employ in India. Expert believes that as many as 200,000 service jobs could be lost for next 15 years.

There are many negative effects of unemployment like those who are unemployed can no longer support country’s economy because they cannot purchase anything which they could purchase before. It also forces people in poverty.

After the global financial crisis president Barak Obama has given Americans the hope for the future. He has spoken about that he will extend unemployment benefits for the American who needs it. He has also spoken about the outsourcing of job by big multinational companies and he has said that he will provide companies incentive for keeping job in US.

This is the graph showing the worst years for job since the end of World War 2. This also shows after global financial crisis the unemployment rate has raised to 7.2%.



Americas unemployment structure after financial crisis

A sobering US labour department reported that the economy had lost 524,000 jobs in December and 1.9 million jobs after the credit crisis began in September. The unemployment rate raised to 7.2% after the credit crisis to 6.7% its highest rate since January 1983.

Underemployment at a record high

A growing number of workers finding full time job were only able to find part time work because they were unable to find full time jobs or there hours had been cut. This type of people number rose from 715,000 to 8 million since such record was kept in 1955.

The under employment rate in America which counts those people who are part time workers as well as those who don’t have job rose to 13.3% from 12.2%.

Job losses wide sp


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