Why Does The USA Economy Matter? - Finance With Atul


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Sunday, May 1, 2022

Why Does The USA Economy Matter?

Why Does The USA Economy Matter? 


By some measures China these days is considered the biggest economy in the world. But when you look at the value of all its goods and services the United States is still at No. 1. So what is the American economy? It’s Silicon Valley, Hollywood, oil manufacturing and finance. It’s pretty mixed. The US is also the most important export destination for a fifth of all countries. That’s because Americans consume a lot. So much that they’re the engine of the US economy. And it all ripples throughout the fabric of the global economy.


Another reason the US economy matters to all of us is that the US dollar is the undisputed king of global currencies. Most global transactions and trading in things like oil and gold are done in US dollars. It wasn’t always that way. Countries used to settle international transactions in gold. But after World War II, countries needed more flexibility to rebuild their economies and chose to peg their currencies to the dollar. That’s because the US had the most gold at the time. A strong dollar can be good or bad depending on who you are.



Wall Street
Why Does The USA Economy Matter?


Japan needs the dollar to be stronger against the yen so American consumers can afford more Japanese products. But a country like Turkey would rather a weaker US currency because banks and businesses there hold a lot of debt in dollars. In other countries a strong dollar can fuel inflation. In Argentina that pushes up prices for basic things like food. And in the US a strong greenback makes imported goods cheaper but it can harm US manufacturers by making their goods more expensive abroad.


Overall, though, the dollar is largely seen as a safe currency. During the pandemic it actually rose. Lately the US dollar has gone up and down. That has to do with all sorts of things. Even a tweet from President Trump can help or hurt the exchange rate. But a lot rides on how the US economy performs. So how is it doing?


Economies are measured using GDP which is the total value of goods and services produced in that country over a period of time. And you can see that over the last 10 years the US economy has been growing. Last year GDP rose by just over 2%. But it took a while to get there. Like the rest of the world the US economy was devastated by the financial crisis in 2008. President George W Bush started the clean-up shoring up banks and rescuing US companies. The Federal Reserve also played a massive role buying bonds and keeping interest rates low. And all that continued under President Barack Obama. 



Why Does The USA Economy Matter?



Congress spent hundreds of billions of dollars on things like social security and tax relief. By 2009 the US had started its longest economic expansion on record. Then President Donald Trump stepped in. The economy did keep growing. But the 4-to-6% boost he promised well, that didn’t happen. Trump added his own touch. He cut regulations to make doing business easier and got Congress to pass tax cuts for American workers and corporations. The promise, there, was to help businesses reinvest money to create jobs. But it didn’t always work that way. A lot of those companies used those tax savings to buy back stocks and boost their value instead. Then there’s Trump’s trade policy of putting America first. He ripped up international trade deals saying they were unfair and hurt American manufacturing. And that led to a trade war.


The US slapped penalties on hundreds of billions of dollars’ worth of Chinese goods. China responded with their own. China also found ways around some of those tariffs. The main thing about Trump’s tenure was that the American public started to feel a whole lot better about the economy. And that had an important effect. So the economy was in good shape and the US jobs market was on fire. Then COVID-19 came along and pushed the economy off a cliff. The US economy slid 5% in the first quarter, when it officially fell into recession. Then in the second quarter it nosedived at a record annual rate of more than 30%. The pandemic still isn’t over. But the focus now is on the economic recovery. In the third quarter of 2020 the economy bounced back a record 33%. The Federal Reserve helped by unleashing a range of measures to keep credit flowing to businesses and households like cutting interest rates to make borrowing cheaper. 


Wall Street, Stock Exchange, Finance, New York, Sign
Why Does The USA Economy Matter

Congress also allocated trillions of dollars in aid to keep workers and businesses afloat and jumpstart growth. That’s a lot of money. The stock market also came roaring back. One reason was that tech companies benefited from the shift to people working and learning from home. You know what else is up? House prices.


Mortgage rates are at a record low so people who own shares or homes — they’re doing OK But what about the rest? Well, some economists are saying this is the most unequal recovery in American history. We also know that economic recovery is starting to slow down. COVID-19 is still spreading some of that financial help we talked about has expired and Republicans and Democrats in Congress can’t agree on the next aid package. Getting the US economy back to its pre-pandemic strength could take years. And how long the virus sticks around will make a difference will make a difference. It’s like an ecosystem. And on that basis the US needs to do well for all of us to turn the corner.


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