North American Situation Has Negative Effects

Even weakened, the U.S. economy continues to be essential for the world economy. This explains the concern of those who follow it, after the meeting of the Federal Open Market Committee.

Ben Bernanke, chairman of the Fed (the U.S. central bank), seemed to be more pessimistic about the pace of recovery in the U.S. economy, despite the repurchase of $600 billion of long-term Treasury securities under the program of quantitative easing (QE2). The aim of the program was to give impetus to economic activities, although it has created serious problems for developing countries, since a good part of the funds of that program are heading toward them. This is generating a surplus in those markets of liquidity that justifies the adoption of measures to control the entry of foreign capital.

The Fed’s goal was to give a boost to the demand of American families that would translate into falling unemployment and a rise in the GDP. But in analyzing the current situation, members of the Fed must recognize that the reaction is far from corresponding to the forecasts they made. They had to thus revise their GDP growth projections made in April from 3.1 to 3.5 percent to 2.7 to 2.9 percent in 2011 and from 3.5 to 4.3 percent to 3.3 to 3.7 percent in 2012, while the amounts previously set down for 2013 are left.

The disappointment comes principally from the slowness with which unemployment, still high, will fall. Added to this is a deterioration of prices that measure inflation, which could reach between 2.3 and 2.5 percent this year and may normalize, in 2012, between 1.5 and 2.1 percent. The increase in inflationary pressures in an idling economy has its origin in the rise of the prices of commodities — in particular, oil.

In this economic context, the Fed, which has a dual mission of controlling inflation and of promoting economic growth, is facing difficulties in raising the interest rates (today almost zero), because that would make it still more difficult to return to growth.

The current United States economic situation started with the banking crisis. Hence, the Fed carefully examines the health of its financial institutions, noting that their banks do not suffer risk with the Greek debt. Nevertheless, what is illustrated is that the European banks, much committed, have a close relationship with the United States financial system.

The world economy needs the U.S. to become healthy again — and this will take time.

About this publication

About Jane Dorwart 194 Articles
BA Anthroplogy. BS Musical Composition, Diploma in Computor Programming. and Portuguese Translator.

Be the first to comment

Leave a Reply