5 Headwinds Facing the U.S. Economy
Published: Wednesday, September 5th 2012
Three years after the recession ended and the greatest economic minds in the U.S. still can’t figure out why the nation’s economy is being held back. Even with interest rates at historic lows, the American economy — as well as the global economy — continues to struggle.
According to Business Insider, part of the problem was central bank and government meddling.
“Following the 2001 recession, the Greenspan Fed held interest rates too low too long, allowing one last party. And it was the party-of-a-lifetime, culminating in the biggest housing and credit bubbles the world has ever seen.”
Now the U.S. economy is facing 10 major headwinds that are making it hard for a strong comeback. Here are five from Business Insider’s list.
5. Commercial real estate
Just as we burst the housing bubble, the commercial real estate sector hasn’t been looking too good since 2010. A report in 2010 by the Congressional Oversight Panel forecasted that between 2010 and 2015, $1.4 trillion in commercial real estate loans would require new financing and nearly half of them were underwater. Vacancy rates were up because of the recession and rents were down.
In February 2012, Fitch Rating revealed that delinquencies for office and retail loans hit their highest levels ever.
4. Artificially low interest rates
The Federal Reserve has been keeping interest rates at historic lows in a bid to encourage new spending. Typically, a low-interest-rate environment is good for economic growth because it encourages business expansion.
However, demand is very low and borrowing has lagged despite the low rates. Plus, this move is doing is hurting the nation’s savers, specifically those on a fixed income. Low interest rates mean less of a return on investment unless you look to something riskier.
Yes, we’re moving forward, but better technology means it can replace actual human workers. In the medical practice, an efficient electronic health record system could mean that the practice just doesn’t need as many staff members.
The New York Times ran a piece in August 2012 about robots replacing human workers in factories.
“The falling costs and growing sophistication of robots have touched off a renewed debate among economists and technologists over how quickly jobs will be lost.”
2. Student loan
This bubble is ready to burst, and even if it doesn’t, the huge amount of debt that students are facing when they graduate from college often holds them back from contributing to the economy.
With tens of thousands of dollars in student loan debt — and in certain career paths, graduates have easily racked up more than $100,000 in debt — young adults are finding it hard to justify buying a house or even getting married and having children.
1. Baby boomers
It used to be that when you hit retirement age, you retired. Instead, many baby boomers don’t feel like they have enough money saved up from retirement, often because their savings and investments took large hits from the recent recession. So they’re holding off on retirement and continuing to work and holding jobs that the younger generation could use, or they’re relying heavily on Social Security, a program which is all ready to run out in 2033.
So what do you think? Are these headwinds part of the reason the U.S. economy is still struggling? Are there other headwinds that are more important?
10 Major Economic Headwinds – Business Insider
Record Low Interest Rates Stiff Savers and the Economy – Yahoo! Finance
Skilled Work, Without the Worker - NYTimes