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Throughout this article, the unqualified term "dollar" and the $ symbol refer to the US dollar.


The economy of the United Statesmarker is the largest national economy in the world in both nominal value and by purchasing power parity. Its nominal gross domestic product (GDP) was estimated as $14.4 trillion in 2008, which is about three times that of the world's second largest economy, Japan Its GDP by PPP is almost twice that of the second largest, China.

The U.S. economy maintains a very high level of output per person (GDP per capita, $47,422 in 2008, ranked at around number ten in the world). The U.S. economy has maintained a stable overall GDP growth rate, a low unemployment rate, and high levels of research and capital investment funded by both national and, because of decreasing saving rates, increasingly by foreign investors. In 2008, consumer spending made seventy-two percent of the economic activity in the U.S.

Since the 1970s, the United States economy has absorbed savings from the rest of the world. The phenomenon is subject to discussion among economists. Like other developed countries, the United States faces retiring baby boomers who have already begun withdrawing from their Social Security accounts; however, the American population is young and growing when compared to Europe or Japan. The 2008 estimates of the United States public debt by the CIA Factbook and the International Monetary Fundmarker were 61% of GDP, about the same as major European countries.

The United States has been one of the best-performing developed countries, consistently outperforming European countries. The American labor market has attracted immigrants from all over the world and has one of the world's highest migration rates. Americans have the highest income per hour worked. The United States is ranked second, down from first in 2008-2009 due to the economic crisis, in the Global Competitiveness Report.

History

The economic history of the United States has its roots in European settlements in the 16th, 17th, and 18th centuries. The American colonies went from marginally successful colonial economies to a small, independent farming economy, which in 1776 became the United States of Americamarker. In 230 years the United States grew to a huge, integrated, industrialized economy that makes up over a quarter of the world economy. The main causes were a large unified market, a supportive political-legal system, vast areas of highly productive farmlands, vast natural resources (especially timber, coal and oil), and an entrepreneurial spirit and commitment to investing in material and human capital. In addition, the U.S. was able to exploit these resources due to a unique set of institutions designed to encourage exploration and extraction. As a result, the U.S.'s GDP per capita converged on that of the U.K., as well as other nations that it previously trailed economically. The economy has maintained high wages, attracting immigrants by the millions from all over the world.

After the Great Depression

For many years following the Great Depression of the 1930s, when the danger of recession appeared most serious, government sought to strengthen the economy by spending heavily itself or cutting taxes so that consumers would spend more, and by fostering rapid growth in the money supply, which also encouraged more spending. In the 1970s, economic woes brought on by the costs of the Vietnam conflict, major price increases, particularly for energy, created a strong fear of inflation. As a result, government leaders came to concentrate more on controlling inflation than on combating recession by limiting spending.

Ideas about the best tools for stabilizing the economy changed substantially between the 1960s and the 1990s. In the 1960s, government had great faith in fiscal policy—manipulation of government revenues to influence the economy. Since spending and taxes are controlled by the president and the U.S. Congress, these elected officials played a leading role in directing the economy. A period of high inflation, high unemployment, and huge government deficits weakened confidence in fiscal policy as a tool for regulating the overall pace of economic activity. Instead, monetary policy assumed growing prominence.

Since the stagflation of the 1970s, the U.S. economy has been characterized by somewhat slower growth.

The worst recession in recent decades, in terms of lost output, occurred in the 1973-75 period of oil shock, when GDP fell by 3.1 percent, followed by the 1981-82 recession, when GDP dropped by 2.9 percent.

Since the 1970s the US has sustained trade deficits with other nations.

Output fell by 1.3 percent in the 1990-91 downturn, and a tiny 0.3 percent in the 2001 recession. The 2001 downturn lasted just eight months.

In recent years, the primary economic concerns have centered on: high household debt ($14 trillion) including $2.5 trillion in consumer debt, high national debt ($9 trillion), high corporate debt ($9 trillion), high mortgage debt (over $10 trillion as of 2005 year-end), high unfunded Medicare liability ($30 trillion), high unfunded Social Security liability ($12 trillion), high external debt (amount owed to foreign lenders), high trade deficits, and a serious deterioration in the United States net international investment position (NIIP) (-24% of GDP). In 2006, the U.S economy had its lowest saving rate since 1933. These issues have raised concerns among economists and national politicians.

The U.S. economy maintains a relatively high GDP per capita, with the caveat that it may be elevated by borrowing, a low to moderate GDP growth rate, and a low unemployment rate, making it attractive to immigrant worldwide.

The United States entered 2008 during a housing market correction, a subprime mortgage crisis and a declining dollar value. On December 1, 2008, the NBER declared that the United States entered a recession in December 2007, citing employment and production figures as well as the third quarter decline in GDP.

Chinamarker, holding $801.5 billion in Treasury bonds, is the largest foreign financier of the record U.S. public debt. China owns an estimated $1.6 trillion of U.S. securities.

Overview

United States wealth compared to the rest of the world in the year 2000
Year-on-year change in total net worth of US households and nonprofit organizations 1946-2007, unadjusted for inflation or population change.
A central feature of the U.S. economy is the economic freedom afforded to the private sector by allowing the private sector to make the majority of economic decisions in determining the direction and scale of what the U.S. economy produces. This is enhanced by relatively low levels of regulation and government involvement, as well as a court system that generally protects property rights and enforces contracts.

The United States is rich in mineral resources and fertile farm soil, and it is fortunate to have a moderate climate. It also has extensive coastlines on both the Atlanticmarker and Pacific Oceansmarker, as well as on the Gulf of Mexicomarker. Rivers flow from far within the continent, and the Great Lakesmarker—five large, inland lakes along the U.S. border with Canadamarker—provide additional shipping access. These extensive waterways have helped shape the country's economic growth over the years and helped bind America's 50 individual states together in a single economic unit.

The number of workers and, more importantly, their productivity help determine the health of the U.S. economy. Throughout its history, the United States has experienced steady growth in the labor force, a phenomenon that is both cause and effect of almost constant economic expansion. Until shortly after World War I, most workers were immigrants from Europe, their immediate descendants, or African Americans who were mostly slaves taken from Africa, or slave descendants. Beginning in the early 20th century, many Latin Americans immigrated; followed by large numbers of Asians following removal of nation-origin based immigration quotas. The promise of high wages brings many highly skilled workers from around the world to the United States.

Labor mobility has also been important to the capacity of the American economy to adapt to changing conditions. When immigrants flooded labor markets on the East Coast, many workers moved inland, often to farmland waiting to be tilled. Similarly, economic opportunities in industrial, northern cities attracted black Americans from southern farms in the first half of the 20th century.

In the United States, the corporation has emerged as an association of owners, known as stockholders, who form a business enterprise governed by a complex set of rules and customs. Brought on by the process of mass production, corporations, such as General Electric, have been instrumental in shaping the United States. Through the stock market, American banks and investors have grown their economy by investing and withdrawing capital from profitable corporations. Today in the era of globalization, American investors and corporations have influence all over the world. The American government is also included among major the investors in the American economy. Government investments have been directed towards public works of scale (such as from the Hoover Dammarker), military-industrial contracts, and the financial industry.

While consumers and producers make most decisions that mold the economy, government has a powerful effect on the U.S. economy in at least four areas, as the government uses a capitalist system. Strong government regulation in the U.S. economy started in the early 1900s with the rise of the Progressive Movement; prior to this the government promoted economic growth through protective tariffs and subsidies to industry, built infrastructure, and established banking policies, including the gold standard, to encourage savings and investment in productive enterprises. On June 26, 2009, Jeff Immelt, the CEO of General Electric, called for the United States to increase its manufacturing base employment to 20% of the workforce, commenting that the U.S. has outsourced too much in some areas and can no longer rely on the financial sector and consumer spending to drive demand.

Education

In 2007, Americans stood second only to Canada in the percentage of 35 to 64 year olds holding at least two-year degrees. Among 25 to 34 year olds, the country stands tenth.

Immigration

United States received 4.31 immigrants per 1000 people in 2009 - 16th highest rate in the world.

Nearly 8 million immigrants came to the United States from 2000 to 2005 – more than in any other five-year period in the nation's history. The analysis shows that 31% of adult immigrants have not completed high school. A third lack health insurance.

Employment



In May 2009, the unemployment rate was 9.4%. A broader measure of unemployment (taking into account marginally attached workers, those employed part time for economic reasons, and discouraged workers) was 15.9%.

Female unemployment continued to be significantly lower than male unemployment (7.5% vs. 9.8%). The unemployment among African-Americans continues to be much higher than white unemployment (at 14.9% vs. 8.6%). The youth unemployment rate was 18.5% in July 2009, the highest July rate since 1948. 34.5% of young African American men are unemployed.

Income and wealth

According to the United States Census Bureau, the pretax median household income in 2007 was $50,233. The median ranged from $68,080 in Marylandmarker to $36,338 in Mississippimarker.

In 2007, the median real annual household income rose 1.3% to $50,233, according to the Census Bureau. The real median earnings of men who worked full time, year-round climbed between 2006 and 2007, from $43,460 to $45,113. For women, the corresponding increase was from $33,437 to $35,102. The median income per household member (including all working and non-working members above the age of 14) was $26,036 in 2006.

The recently released US Income Mobility Study showed economic growth resulted in rising incomes for most taxpayers over the period from 1996 to 2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. Income mobility of individuals was considerable in the U.S. economy during the 1996 through 2005 period with roughly half of taxpayers who began in the bottom quintile moving up to a higher income group within 10 years. In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups.

Sectors

Energy

The United Statesmarker is the largest energy consumer in terms of total use, using 100 quadrillion BTUs (105 exajoules, or 29000 TWh) in 2005. The U.S. ranks seventh in energy consumption per-capita after Canada and a number of small countries. The majority of this energy is derived from fossil fuels: in 2005, it was estimated that 40% of the nation's energy came from petroleum, 23% from coal, and 23% from natural gas. Nuclear power supplied 8.4% and renewable energy supplied 6.8%, which was mainly from hydroelectric dams although other renewables are included such as geothermal and solar energy.

American dependence on oil import grew from 24% in 1970 to 65% by the end of 2004. At the current rate of unchecked import growth, the US would be 70% to 75% reliant on foreign oil by the middle of the next decade. Transportation has the highest consumption rates, accounting for approximately 68.9% of the oil used in the United States in 2006,
 and 55% of oil use worldwide as documented in the Hirsch report.


Agriculture

Agriculture is a major industry in the United States and the country is a net exporter of food.

Products include wheat, corn, other grains, fruits, vegetables, cotton; beef, pork, poultry, dairy products; forest products; fish.

Manufacturing

USA is the leading manufacturer in the world with a 2007 industrial output of US$2,696,880 millions.Main industries are petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, mining.

Finance

The New York Stock Exchangemarker is a stock exchange located at 11 Wall Streetmarker in lower Manhattanmarker, New York Citymarker, New Yorkmarker, USAmarker. It is the largest stock exchange in the world by United States dollar value of its listed companies' securities. As of October 2008, the combined capitalization of all domestic NYSE listed companies was US$10.1 trillion.

NASDAQ, is an Americanmarker stock exchange. It is the largest electronic screen-based equity securities trading market in the United States. With approximately 3,800 companies and corporations, it has more trading volume per hour than any other stock exchange in the world.

International trade

The United States is the most significant nation in the world when it comes to international trade. For decades, it has led the world in imports while simultaneously remaining one of the top three exporters of the world.

As the major epicenter of world trade, the United States enjoys leverage that many other nations do not. For one, since it is the world's leading consumer, it is the number one customer of companies all around the world. Many businesses compete for a share of the U.S market. In addition, the United States occasionally uses its economic leverage to impose economic sanctions in different regions of the world. The U.S. is the top export market for almost 60 trading nations worldwide.

Since it is the world's leading importer, there are many U.S. dollars in circulation all around the planet. The historically stable American economy and effective monetary policy led to faith in the U.S. dollar. 2009 has seen government policy that is weakening the US dollar. Large foreign economies own huge dollar reserves (especially as the US is more in debt) so there is a fear that they will move away from the dollar.

In 2008, the total U.S. trade deficit was $695.9 billion. The trade deficit with Chinamarker was $266.3 billion, a new record and up from $304 million in 1983.

In order to fund the national debt (also known as public debt), the United States relies on selling U.S. treasury bonds to people both inside and outside the country, and in recent times a growing percent of buyers are international.

Economic predictions and forecasting

Predictions about the direction of the United States economy in the short term and long term are crucial factors in determining federal government policies, business decisions, and Federal Reserve decisions. Several institutions make economic predictions, including: Global Insight, and the UCLA Anderson Forecast. Various state agencies, including the California Department of Finance, also make predictions.

Currency and central bank

United States historical inflation rate 1666–2004


The United States dollar is the unit of currency of the United Statesmarker. The U.S. dollar is the currency most used in international transactions. Several countries use it as their official currency, and in many others it is the de facto currency.

The federal government attempts to use both monetary policy (control of the money supply through mechanisms such as changes in interest rates) and fiscal policy (taxes and spending) to maintain low inflation, high economic growth, and low unemployment. A relatively independent central bank, known as the Federal Reserve, was formed in 1913 to provide a stable currency and monetary policy. The U.S. dollar has been regarded as one of the most stable currencies in the world and many nations back their own currency with U.S. dollar reserves.

During the last few years, the U.S. dollar has gradually depreciated in value and its reserve currency status is no longer as high as previously. With increased US debt, policy that's weakening the dollar and the EU signing the Lisbon Treaty, the dollar is less of a global currency standard.

The dollar used gold standard and/or silver standard from 1785 until 1975, when it became a fiat currency.

Government involvement

Regulations

The U.S. federal government regulates private enterprise in numerous ways. Regulation falls into two general categories.

Some efforts seek, either directly or indirectly, to control prices. Traditionally, the government has sought to prevent monopolies such as electric utilities from raising prices beyond the level that would ensure them extremely large profits. At times, the government has extended economic control to other kinds of industries as well. In the years following the Great Depression, it devised a complex system to stabilize prices for agricultural goods, which tend to fluctuate wildly in response to rapidly changing supply and demand. A number of other industries—trucking and, later, airlines—successfully sought regulation themselves to limit what they considered as harmful price cutting, a process called regulatory capture.

Another form of economic regulation, antitrust law, seeks to strengthen market forces so that direct regulation is unnecessary. The government—and, sometimes, private parties—have used antitrust law to prohibit practices or mergers that would unduly limit competition.

Bank regulation in the United States is highly fragmented compared to other G10 countries where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. The U.S also has one of the most highly regulated banking environments in the world; however, many of the regulations are not safety and soundness related, but are instead focused on privacy, disclosure, fraud prevention, anti-money laundering, anti-terrorism, anti-usury lending, and promoting lending to lower-income segments.

Since the 1970s, government has also exercised control over private companies to achieve social goals, such as improving the public's health and safety or maintaining a healthy environment. For example, the Occupational Safety and Health Administration provides and enforces standards for workplace safety, and the United States Environmental Protection Agency provides standards and regulations to maintain air, water, and land resources. The U.S. Food and Drug Administration regulates what drugs may reach the market, and also provides standards of disclosure for food products.

American attitudes about regulation changed minimally during the final three decades of the 20th century. Beginning in the 1970s, policy makers grew increasingly convinced that economic regulation protected companies at the expense of consumers in industries such as airlines and trucking. At the same time, technological changes spawned new competitors in some industries, such as telecommunications, that once were considered natural monopolies. Both developments led to a succession of laws easing regulation.

While leaders of America's two most influential political parties generally favored economic deregulation during the 1970s, 1980s, and 1990s, there was less agreement concerning regulations designed to achieve social goals. Social regulation had assumed growing importance in the years following the Depression and World War II, and again in the 1960s and 1970s. During the 1980s, the government relaxed labor, consumer and environmental rules based on the idea that such regulation interfered with free enterprise, increased the costs of doing business, and thus contributed to inflation. The response to such changes is mixed; many Americans continued to voice concerns about specific events or trends, prompting the government to issue new regulations in some areas, including environmental protection.

Where legislative channels have been unresponsive, some citizens have turned to the courts to address social issues more quickly. For instance, in the 1990s, individuals, and eventually the government itself, sued tobacco companies over the health risks of cigarette smoking. The 1998 Tobacco Master Settlement Agreement provided states with long-term payments to cover medical costs to treat smoking-related illnesses.

Taxation

Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation. United Statesmarker taxation includes local government, possibly including one or more of municipal, township, district and county governments. It also includes regional entities such as school and utility, and transit districts as well as including state and federal government.

The National Bureau of Economic Research has concluded that the combined federal, state, and local government average marginal tax rate for most workers to be about 40% of income. The Tax Foundation concluded that government at all levels will collect 30.8% of the nation's income for 2008. Tax Day, the day by which tax returns are due, is usually April 15.

Expenditure

The United States public sector spending amounts to about a third of the GDP.

Each level of government provides many direct services. The federal government, for example, is responsible for national defense, backs research that often leads to the development of new products, conducts space exploration, and runs numerous programs designed to help workers develop workplace skills and find jobs (including higher education). Government spending has a significant effect on local and regional economies—and even on the overall pace of economic activity.

State governments, meanwhile, are responsible for the construction and maintenance of most highways. State, county, or city governments play the leading role in financing and operating public schools. Local governments are primarily responsible for police and fire protection.

Overall, federal, state, and local spending accounted for almost 28% of gross domestic product in 1998.

As of January 20, 2009, the total U.S. federal debt was $10.627 trillion (an increase of 85.5 percent over the previous eight years).The borrowing cap debt ceiling as of 2005 stood at $8.18 trillion. In March 2006, Congress raised that ceiling an additional $0.79 trillion to $8.97 trillion, which is approximately 68% of GDP. Congress has used this method to deal with an encroaching debt ceiling in previous years, as the federal borrowing limit was raised in 2002 and 2003. As of October 4, 2008, the "The Emergency Economic Stabilization Act of 2008" raised the current debt ceiling to US$ 11.3 trillion.

While the U.S. national debt is the world's largest in absolute size, another measure is its size relative to the nation's GDP. As of January 20, 2009, the debt was 73 percent of GDP, a level not seen in the U.S. since 1955 when the country was recovering from World War II. This debt, as a percent of GDP, is still less than the debt of Japan and roughly equivalent to those of a few western European nations. The US debt as a percent of GDP is more than the debt of European Union as a collective.

See also



References

  1. Can the World Stop the Slide, TIME, February 4, 2008, page 27.
  2. US spends its way to 28 Eiffel towers: made out of pure gold, Times Online
  3. (all estimates 2007 data unless noted)
  4. http://www.conference-board.org/economics/downloads/ted09I.xls
  5. Click the link "Rankings" to access the entire list.
  6. Bivens, L. Josh (December 14, 2004). Debt and the dollar Economic Policy Institute. Retrieved on July 8, 2007.
  7. Associated Press (January 30, 2006). US savings rate hits lowest level since 1933MSNBC. Retrieved on May 6, 2007.
  8. Cauchon, Dennis and John Waggoner (October 3, 2004).The Looming National Benefit Crisis. USA Today
  9. " Washington learns to treat China with care". CNNMoney.com. July 29, 2009.
  10. " China must keep buying US Treasuries for now-paper". Reuters. August 19, 2009.
  11. U.S. Department of state:How the U.S. Economy Works Retrieved December 1, 2008
  12. Bailey, David and Soyoung Kim (June 26, 2009). GE's Immelt says U.S. economy needs industrial renewal.UK Guardian.. Retrieved on June 28, 2009.
  13. " Immigration surge called 'highest ever'". Washington Times. December 12, 2005.
  14. " Study: Immigration grows, reaching record numbers". USATODAY.com. December 12, 2005.
  15. " Employment and Unemployment Among Youth Summary". United States Department of Labor.
  16. " Blacks hit hard by economy's punch". The Washington Post. November 24, 2009.
  17. Census Bureau: Two-Year-Average Median Household Income by State: 2004 to 2007
  18. World Per Capita Total Primary Energy Consumption,1980-2005 (MS Excel format)
  19. World Resources Institute " Energy Consumption: Consumption per capita" (2001). Nations with higher per-capita consumption are: Qatar, Iceland, United Arab Emirates, Bahrain, Luxembourg and Canada. Except for Canada, these are small countries with a prominent energy-intensive industry such as oil refining or steelmaking.
  20. US Dept. of Energy, " Annual Energy Report" (July 2006), Energy Flow diagram
  21. Forbes.com
  22. [1]
  23. http://www.nyxdata.com/nysedata/default.aspx?tabid=115
  24. " The U.S. Trade Deficit". Useconomy.about.com.
  25. " Beijing's Propaganda Goes Global". Gordon G. Chang, Forbes. May 6, 2009.
  26. The Implementation of Monetary Policy - The Federal Reserve in the International Sphere
  27. Benjamin J. Cohen, The Future of Money, Princeton University Press, 2006, ISBN 0691116660; cf. "the dollar is the de facto currency in Cambodia", Charles Agar, Frommer's Vietnam, 2006, ISBN 0471798169, p. 17
  28. National Debt Burden : Full History


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