With all the economic turmoil recently, it can be difficult to keep track of the U.S. economy and which direction it’s headed, especially when it is in its current poor state. Obviously the economy is influenced by a huge number of factors and some of these factors can be quite controversial.
The Beige Book
One of the key sources of information about the state of the economy is the Federal Reserve Beige Book, which is published 8 times a year. This book is meant to give a snapshot of the current state of the economy in the US and illustrate how the economy got to that state.
Dividing the country into 12 regions, the book shows the economic standing in the U.S. in each of those 12 regions by examining the following factors:
- Personal Consumption
- Personal Income
- Personal Spending
- Pending Home Sales
- Consumer Confidence
- Activity in Industry
Based on these factors alone, though, it is impossible to make a confident conclusion that the US economy is on its way to recovery. More information is required.
Current problems in the U.S. economy:
According to the federal reserve, the United States has more than $120 trillion in outstanding debt. Not only is this a nightmare for the country’s entire financial system, but there is currently no foreseeable way that the country will ever be able to get out of debt.
Increasing Federal Deficit
Based on economic forecasts, without massive reforms, the country’s federal deficit will increase by $3 trillion per year starting in 2020.
The actual percentage of people who are unemployed or underemployed in the country is about 20%, which is more than double the amount that the department of labor reports through the media. When the economy slows, businesses are unable to expand and develop as they would naturally. Instead, the opposite happens and companies begin to significantly downsize. This downsizing leads to increased unemployment. And companies that have downsized have to go through a period of recovery before they can start to grow again and hire more people.
Despite mortgage rates currently being at record lows, the housing market is on its way to another crisis. Twenty-five percent of houses are already “underwater,” meaning the home owner owes more money for the house than it’s actually worth. Many current home owners are not in a position to pay their mortgages and in the long run this inability for homeowners to pay back mortgages will trigger another crisis with the banks. On top of that, most homes that foreclose will eventually reappear on the housing market, and this influx of available homes will eventually cause home prices to drop by another 30%.
China’s Economy is growing slower than it had been originally forecasted and considering the fact that one of the major consumers of oil in the world is China, this could possibly lead to the commodity bubble popping. If that happens, this could cause an economic crash in countries throughout Asia, Latin America, the Middle East and Africa, which strongly depend on export to China. All of this could potentially wreak havoc on the U.S. economy.
Oil & Gold
The Current State of Oil
Oil prices have been dropping recently because people are losing confidence in the global economy. For example, the price of Brent Oil dipped below $120 a barrel, which hasn’t happened since July 2012 and these dropping oil prices reflect investors’ fear that the global economy is getting worse. China and the U.S. are the world’s largest consumers of oil and both countries’ economies are in bad shape, which doesn’t bode well for oil producing nations or the global economy at large.
The Current State of Gold
In April, the price of gold plummeted to its lowest since 2011. Not only that, but when it did fall, it was the biggest price drop in history for gold and it happened in a single trading session. This drop in gold prices indicates that investors are anticipating that the inflation on gold will decrease, giving investors fewer reasons to buy gold and hold onto it.
The present drop in gold prices indicates that countries such as Cyprus, with its massive gold reserve, are planning to sell gold and investors are afraid that other countries could follow suit and this has contributed to the drop in gold prices.
However, gold has not bottomed out just yet. Based on certain analysis, gold could get as low as $1,100 an ounce. As soon as gold does hit this bottom, though, a new cycle of purchasing and price growth will begin.
Today it’s anyone’s guess as to which direction the global and US economies will move. However, we do know the potential consequences of the economy continuing in the same direction as it’s going now. Unfortunately, there are currently more problems than successes and whether the future holds more problems or more successes depends largely on the politics of the Federal Reserve.
Commentscomments powered by Disqus