Finance Help: Can the US Economy Recover in 2009?
The US economy experienced negative growth rates in 2008 (especially in the third quarter). This was primarily due to a slowdown in the market for housing and a significant fall in the consumer spending levels. With the help of financial planners and advisors, it is probable that the US economy might recover in 2009, at least in the second half of the year. A recovery of the US economy is of paramount importance, given the degree of dependence of the world market on the former.
In an attempt to identify the causes for the slowdown in the American economy this year, William Testa (the vice president and regional director of the Federal Reserve Bank in Chicago) said that, about 70% of the total economic activity in the US comprised of household consumer spending. In the face of acute financial crisis, recession and credit crunch, the household spending figures have significantly gone down, causing economic growth in the US to be stalled.
The fear or anxiety of losing one’s job has primarily caused the common individual to cut down on his levels of spending. This retrenchment in expenditure has also resulted from a re-adjustment of personal portfolios and re-valuation of 401K and personal properties.
However, economic experts remain optimistic about the recovery of the US economy in 2009. Echoing this view, Ilian Mihov, professor of economics at INSEAD, added that, the victory of Barrack Obama (the first Afro-American US President) came as a fresh lease of life in this wave of expectations of an economic recovery.
Obama’s campaign strategy was largely based on the policies of an increase in government spending, and a reduction in the tax rates. These steps, if carried out in a focused and aggressive manner, are bound to help the US economy recover. Indeed, by the middle of 2009, it is expected that the economy will start moving in the right direction again. The Federal Reserve has already cut down its key rate from 1.5 to 1.0 per cent, in an attempt to bolster the economy via aggressive rate-reductions. This measure (which can be extended via further reduction in the key rate) and injection of more liquidity in the financial markets (also by the Fed) are likely to stimulate aggregate demand. This, in turn, should help the US economy get out of the current recessionary phase.
Other effective, yet unorthodox, steps are also being adopted by the Federal Reserve to counter deflation in the economy. The purchase of commercial papers (a money-market instrument) represents one such recession-fighting measure. Another step that might be considered is a significant reduction in oil prices. If people can get the requisite oil and gas amounts at a lesser price, (s) he will automatically have more cash that could be spent in other channels.
However, there is one factor critical to the recovery of the US economy by 2009. The transition of power from the office of George W. Bush to Barrack Obama should not take too long. A smooth transition of political power, aggressive anti-recessionary policies initiated by the Federal Reserve and fiscal stimulus (provided by the US Congress), along with help from personal financial advisors and financial planners, should be instrumental in the recovery of the US economy in 2009.