Let’s talk about the world’s biggest economy
because it affects just about everyone
Depending on what you read
the US economy is well on the way to recovery
after the crisis caused by COVID-19.
The whole world is trying to get back on track.
But how long that will take
depends a lot on the Americans.
So who really created the strong US economy
before the pandemic hit?
Is the recovery starting to slow?
And is inequality getting worse — not better?
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 No. 1.
So what is the American economy?
It’s Silicon Valley
Hollywood
oil
manufacturing
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 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 Two
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.
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.
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.
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.
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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stories in the news
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