What About The Economy?

Question

I hear people talking about how the economy is getting worse and worse all the time, what exactly is causing the economy to fail?

Answer 1

Fail...yes in a way.  But not collapse.  And the economy has gotten a little better lately.  GDP growth- (Gross Domestic Product :)) while not as strong as some forecasts were, is still resilient .The housing market may recover next year.  And oil prices have gone down lately thanks to less demand.

But if you want to know the main factors..here they are.  They are big and long issues so I'll give you summaries because typing it all out takes way tooo long and overly-large amounts of research hehe.  One big part of the economy doing poorly is the housing problems. ^^; Banks gave mortgages to people (actually mortgage bonds..here's how it works.  They sold mortgages to the market- a bond market, and bought mortgage bonds.  They then gave the mortgage bonds to people.  However, in order to make money, the banks need people to repay them for the bonds..and people ended up not being able to pay money..so banks were left with owing a lot of money...to those they bought bonds from).  Wow that was confusing..but here's a much EASIER way to explain it.  :)  Regulations on the mortgage industry were lessened.  Mortgage companies decided to give A LOT of people mortgages (which need to be paid over a period of time by homeowners).  Those who bought them..well so many people got mortgages, even though they couldn't have the ability to repay them.  Companies knew that yet they STILL gave.  At the start, it began to work.  People bought homes..And people kept getting mortgages.  Everything seemed okay.  People were able to repay the mortgages at first.  However, things collapsed later on.  The interest rates on the loans that people got were toooooooo high.  Thus, the interest rates on the mortgages added on to the list of things to pay for (the total of mortgages to repay became too high). And people couldn't pay for them.  The whole system collapsed and both individuals and mortgage lenders fell- individuals because they owed payments for mortgages Lenders because they couldn't get money back that they owed.  That's why big businesses like Freddie Mac and Fannie Mae failed.

Another huge problem is the cost of oil.  Its pretty high now..and yes still high, bigger than last year (though less recently).  There are many causes to this.  The big- one of the largest- big causes of the oil prices being high involves other countries.  Countries all around the world are growing- their economies are growing- things are getting better and populations are increasing.  So, here's where the problem comes in.  China and India and other nations have very high needs thanks to a growing population and growing economy.  So they need more fuel..and their demand for oil soared, causing prices to go up.  Demand skyrocketed prices.  Along with this is less supply.  Some countries- probably to ensure that they have enough oil- have reduced their supply of oil.

http://news.bbc.co.uk/2/hi/business/7073... article on housing problem if you want to see.

Those two issues are the largest ones facing America's current economy.  The third issue would be people spending more than they should.  People in the US have spent so much money.  They lived beyond their means.  Now, bunches of them are in debt- not only from housing but from other things too.  Bills are adding up, life is tough, and they are in debt- and credit is poor...so there has been excessive problems with consumption in this country.

Those two issues are the largest ones facing America's current economy.  The third issue would be people spending more than they should.  People in the US have spent so much money.  They lived beyond their means.  Now, bunches of them are in debt- not only from housing but from other things too.  Bills are adding up, life is tough, and they are in debt- and credit is poor...so there has been excessive problems with consumption in this country.

Of course there are other issues.  However, some are directly related to the housing and/or oil issues.  Like food prices...a large reason why they are so high is because of oil being so high, it costs a bunch of money to transport food.  Others like deficits will have a long-term role.  The deficits and high spending will increase our debt..which will need so many people to pay back- :( those who pay taxes will have higher taxes in the future- that is unless we bring down our deficit. As for how the economy will do within the next few years.  It will get better.  The Economist, a publication, predicts our economy will slowly grow in 2009 (slight GDP growth) and will be much better the year after..so I think things will improve a bit..gradually improve in 2009 and be almost better in 2010.

Answer 2

When energy costs rise the costs of producing and transporting a good rises. Which in turn makes employers lay off workers which in turn makes people less apt to buy non essential goods. It is a circle, economic downturns will always happen as will upswings.

The rise in oil prices will cause a less efficient economy until demand for other goods wane. Oil went down today because the American enonomic report showed people have less to spend elsewhere which means China (or any other country) will sell less to the U.S.

To answer your question, energy costs, layoffs, the subprime mess and the deficit are wreaking havoc right now.  

Answer 3

hard industry s leaving the country,leaving us a service industry that doesn't pay near as well..........tom

Answer 4

the dependence on foreign oil. Our next president could decide where it goes. They keep raising the oil prices so we keep having to pay them and we keep going into debt. We are into 10 trillion dollars into debt right now. That is about 30000$ of debt for every american. If obama gets it. we are screwed. he wants to raise the capital gains tax and also rewrite the constitution. That is a summary here is a webpage if you want to check it out. http://money.cnn.com/news/economy/