Kravchuta J.

PhD Zhukova O.

PhD Petrachkova O.

Donetsk State University of Management

U.S. Economy: Prospects and expectations

The September 11 attacks in the United States made a serious psychological impact on American citizens - but the economy had a much less powerful effect. This text considers objectively state of the economy and possible perspectives of its development.

First. As we can see, before the attacks the situation in the U.S. economy has deteriorated dramatically. First and foremost, we are talking about domestic demand - that "magic wand", which has being stretching the U.S.GDP in the region of positive growth in recent months.

Second. Events in the U.S., have no relation to the cyclical downturn (threatening to go to the same cyclical recession). In particular, the negative processes in the U.S. economy do not react to lower rates, which already carry nearly a year the U.S. Federal Reserve.

In our opinion, this country is a classic structural crisis, which is basically impossible to stop by the macro-economic methods, because it is caused by the mismatch of the current economic structure and the structure of final consumption. More specifically, the end user (people) is categorically unwilling to consume the products of the "new" (information) economy to the extent that it occupies in the total U.S. production. And while this sector is not being reduced to levels that are more or less to relevant consumption, the crisis will continue.

Reducing interest rates, creating the effect of cheapening credit, only slow the process and aggravate the crisis - thus delaying the exit from it.

Third. From the perspective of the U.S. stock market, the structural crisis must lead to a sharp drop from the present, the superheated state in the new, the corresponding average mortality value of the shares in relation to company profits. This means that the level of the index Dow-Jones has to stoop to the level of 3000 - 4000, and the Nasdaq - even stronger, because they are on the market traded shares of the companies' new economy, many of whom will die within the framework of economic restructuring. The problem of the U.S. economy mainly lies in the fact that shares (and derivative assets) are the main assets of U.S. financial institutions. The fall of stock market indices may lead to massive bankruptcies, which seriously hamper the process of overcoming the crisis.

Fourth. At present, there are two basic plans for U.S. withdrawal from the crisis. The first is that the U.S. economy should be locked from outside influence and a powerful budget begins pumping industry. Because after "closure" of the U.S. economy in the world begins a powerful financial crisis, the U.S. has a chance due to the technological advantages of the first to emerge from this global crisis. Less of this plan - lost control of the global financial system since the implementation of this plan will have to sacrifice the Wall Street investment banks, which, in fact, logged and monitored.

The second plan consists in the direction of resources to strengthen the military pressure on all countries to help ease their pressure on the American economy (both objective and subjective), and any price to maintain control over the global financial system. In this case, the objective problems of the U.S. economy should be offset by the global economy (such as the United States managed to persuade Europe to abandon sanctions against the U.S. in the WTO to "end the fight with the terrorists"). As is clear, these two plans (one of which can be called "orthodox Republican," and second, respectively, the "democratic" – names of the major political forces that support them) can not be implemented simultaneously, since it is unclear whether enough resources to implement one of them.

Fifth. To date, the Bush administration holds both the plan at the same time (which is clearly visible on the officials' statements). In this case the forefront of the major figures supports the Secretary of State Powell (and likely Treasury O'Neill, who still has not shown his opinion), and the second - the triple Cheney, Rice and Rumsfeld (to which, of course, the entire Democratic Party U.S. Wall Street joins). At the same time, President Bush will likely not change this because of his dual position as it leaves him room for political maneuver. This suggests that U.S. policy in the coming months will be differing in inconsistency, abrupt changes in rate and nervousness.

Sixth. Stimulating the economy by reducing the discount rate was at a deadlock. Currently, this rate is lower than the official inflation rate (and significantly below the actual inflation rate), and rate cuts did not lead to cheaper credit - in unstable economy banks, in general, tightened access to credit of borrowers. In addition, the subsequent September 11 pumping liquidity of the financial system (which was to compensate for the sharp drop in the value of financial system assets) actually means easy access to centralized resources of banks, issued a negative percentage.

In addition, the desire to pull out at any price the market background of the divide has led to the lifting of all restrictions that were imposed on it as a result of the crisis of the 30-ies and its subsequent history. This, of course, has being acted yet in a positive aspect, but because of negative processes in the economy continue, may stimulate a much stronger market drop and panic on him, than it would in a normal development of the situation.

Conclusion. In the near future, U.S. policy, both in economics and foreign policy will be accompanied by sharp steps and frequent changes of course. In this case, negative developments in the economy will grow and may result in consequences comparable to the Great Depression of the 30-ies.