The Growth Policy Now Must Minimize Future Risks
August 5th, 2010The market-oriented economy of the United States of America is the largest and most technologically powerful in the world. With technological predominance over the years, there has been a gradual development towards a ‘two-tier labor market’ wherein those at the bottom do not have the requisite education and/or relevant professional or technical skills as those at the top. Hence, those in the former category remain deprived of a comparable rise in pay rate, health insurance coverage and other such benefits. Since 1975, practically all gains have gone to the top 20% of households.
The Iraq war in 2003 and the rising prices of oil between 2005 and 2008 have drained the national resources extensively. Other issues like inadequate investment in economic infrastructure, rising medical and pensions costs for an aging population , trade and budget deficits, and stagnation of family income for low income groups have further stunted economic growth. Of course, the mortgage crisis, the failure of big financial institutions and credit rating agencies are also being looked into.
Loss of jobs led to defaults on home loan repayments. Thus, unemployment and homelessness have been the two major fallouts of the present financial crisis that have adversely affected the lives of millions of Americans. Unemployment peaked at 10.2 % in October 2009. In May 2010, it was at 9.7 % with 15 million unemployed. The recent improvement in employment is largely due to large scale temporary hiring by the government to conduct the 2010 Census. Private Sector hiring has barely changed.
Factories are producing more but prices are falling. The manufacturing-led recovery is not generating inflation. This should help in further growth. Rebuilding their inventories, meeting increasing overseas demand and investing in new equipments is keeping the manufacturing sector in the driver’s seat in this phase of recovery. Manufacturers employed 29,000 workers in May. Working hours have increased and overtime hours are at their highest in two years. Increase in global demand for agricultural commodities, housing and infrastructure is also helping facilitate the rebound in the manufacturing sector. It is the domestic home-construction sector that remains unimpressive. April saw work begin on 672,000 houses and this was down to 648,000 in May. The deadline for tax credit for first-time home buyers ended in June and this will further cool sales and construction in the latter half of this year.
In the U.S., market analysts are projecting 2010 to end with a 9.7 % unemployment rate with a significant drop to 8 % by 2011.
In the United Kingdom, the number of people claiming Jobseeker’s Allowance (JSA) decreased by 30,900 between April and May 2010 to 1.49 million. It is for the first time that the claimant count has come down below 1.5 million since March 2009. The number of vacancies between March and May, 2010, has increased by 7,000 to 492,000.
Japan recorded a 5.10 % unemployment rate in April 2010 after peaking at 5.6 % in July 2009. Even though layoffs are not happening, employers are still reluctant to hire afresh.
Germany seems to be driving the European economy and is set to expand by 3-4 % this quarter. Positive trends have been forecasted for employment as well as consumer spending and manufacturing, according to Wall Street Journal. Unemployment fell by 45,000 in May,2010, with the unemployment rate down to 7.7 %, lowest since December 2008. There were 3.24 million Germans unemployed in May 2010. Experts do warn against exposure of German banks to debt-ridden Euro countries like Greece, Portugal and Ireland.
Fiscal and financial responsibility is the need of the hour across the board. Ben Bernanke, the central bank chief of USA said, “Minimizing the risk of future financial crisis will require tougher prudential standards for financial firms, especially systemically important financial firms, as well as more intensive supervision”.


















