News: American GDP rose in 3rd Quarter 3.5%

American government reported that GDP in third quarter rose by 3.5% compared to second. Large numbers of media distribute this information as America moved out of recession, but is it early to celebrate? The similar articles could be found in most of the leading news agencies as The New York Times and The Economist.

Even so, this is first positive announcement from second quarter 2008; it is very early to bring up this serious conclusion. The facts that during the last period government put a lot of injections and stimulant programs cannot be forgotten, and for sure they had it a large impact on these positive changes in GDP, the question is for how long this GDP is sustainable?

Even a small group of academic economist is confident that the recession was over in June, group of researcher form The Economist by YouGov came up with a different result about public confidence. 35% of respondents answered that economy is getting worse and only 28% have positive impression, others stayed independent. The most important note that easily could be missed is that growth of 3.5% is only comparison to second quarter, which if we look historically had very bad results.

Firstly, even GDP is one of the most important macroeconomic markers; we cannot ignore others, as rate of unemployment, exchange rate, inflation rate, trade deficit and others. As much as it could be catch up form the media the most considerable of all of them is still growing trade deficit and very high unemployment rate, which is in constant staidly grow since January 2008. In October it reached 10.2% what haven’t been seen on this territory since 1983. The fact that dollar depreciate 15% comparing to euro in the last eight months also cannot be ignored. This change in value of dollar will have positive effect on USA export but it is very considerable in the terms of import, and as it well-known Americans preferred to buy imported good rather than domestic. This can caused stagflation.

In my opinion, American government should take some actions that have direct impact on import of goods, as higher custom tariffs and stricter quotes for imported goods.

Furthermore, government should invest in rising awareness that the price of imported goods that Americans are paying for them is not definitive, and that the real price of buying them can be seen since December 2007 or on the other hand since credit crunch began.

Injection and stimulant programs should be more oriented on long-term solutions. Up to now stimulate programs as “cash for clunkers”, and $8,000 federal tax credit for first-time home buyers had short-time effects, but the way out from this negative situation requests more effective programs in long-term.

Personally I think that government also should make some reforms in unemployment sector, to find the way to stimulate employers to employee more labour power. Maybe the way is to give benefits, in the terms of reducing or cut off of income taxes, for hiring new labour, for some determinate time of period, one-two years. Decrease in rate of unemployment will for sure have multiply effect in macroeconomic and microeconomics area. Resolving of this problem can be the key for opening the process on macroeconomic level. If there is higher number of employees there will be a higher number of people that have an income, they will spend more and in the future, when the crisis time past it can be expected that their preferences and needs will rise and that they will be willingness to improve their life and spend even more. One thing is well known Americans are consumer oriented market so this can be continual process and stabile column of economy.

America should also focus on mortgages and loans, and make programs that are more accurate in the terms that users are able to pay them if the situation on market has negative changes. In the terms of this suggestion, in my opinion government of America in the past period gave a lot of stimulants for buying goods on a credit, what gave irresistible and fake impression that all the people can have goods which in real life actually the could not have. So people were spending more that they could earn and it is more than obvious that this delusion have it own limits and the life cycle. The price for this illusion cost a lot of people to lose their homes and end up at the street.

If the government would twist on its own production capacities and rise awareness of importance to buy domestic goods it can be solution to resolve main problems as unemployment and trade deficit at the same time. This action needs a lot of efforts, programs, actions and time but it seams as reasonable.

Sources:

http://www.economist.com/node/14779329

http://www.nytimes.com/2009/10/30/business/economy/30econ.html