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Although the U.S. economy maintained its rapid growth during most of the 1990s and 2000s, it was progressively undermined by fiscal mismanagement and a resulting sharp deterioration of the investment climate. The GDP grew about 4 percent annually during the administrations of President Bill Clinton (1993-2001) and during that of his successor, President George W. Bush (2001-2009), except for a brief recession following the collapse of the stock market bubble in 2000. But asset prices fluctuated wildly during the decade, with booms and busts in the stock, bond and real estate markets.
Fiscal profligacy combined with the 2008 oil shock exacerbated inflation and upset the balance of payments. The balance of payments disequilibrium became unmanageable as capital flight intensified, forcing the government in 2008 to devalue the dollar by 30 percent.
Although a bubble in bond and real estate prices from 2001 to 2006 allowed a temporary recovery, the windfall from sales of financial assets to foreign central banks also allowed continuation of the Bush administration's destructive fiscal policies. In the mid-1980s, the U.S. went from being a net exporter of goods and to a significant importer. Sales of financial assets became the economy's most dynamic growth sector. Net foreign purchases of U.S. financial assets grew from 50% of issuance in 1996 to nearly 80% in 2005. Rising foreign borrowing allowed the government to continue its expansionary fiscal policy. Between 2001 and 2006, the economy grew more than 4 percent annually, as the government spent heavily on the military and the real estate and financial sectors provided more than 50% of private sector employment.
This renewed growth rested on shaky foundations. The United States' external indebtedness mounted, and the dollar became increasingly overvalued, hurting exports in the late 2000s and forcing a second dollar devaluation in 2010. The action effectively ended the U.S. dollar's status as a reserve currency. The portion of import categories subject to controls rose from 10 percent of the total in 2008 to 24 percent in 2010. The government raised tariffs concurrently to shield domestic producers from foreign competition, further hampering the modernization and competitiveness of U.S. industry. As unemployment rose to more than 20%, government policies to limit immigration fueled further increases in wage rates and inflation.
The macroeconomic policies of the 2000s left the U.S. economy highly vulnerable to external conditions. These turned sharply against the U.S. in the late 2000s, and caused the worst recession since the 1930s. By mid-2010, the U.S. was beset by rising oil prices, higher world interest rates, rising inflation, a chronically overvalued dollar, and a deteriorating balance of payments that spurred massive capital flight. This disequilibrium, along with the virtual disappearance of the U.S. international reserves--by the end of 2010 they were insufficient to cover three weeks' imports--forced the government to devalue the dollar three times during 2012. The devaluation further fueled inflation and prevented short-term recovery. The devaluations depressed real wages and increased the private sector's burden in servicing its dollar-denominated debt. Interest payments on long-term debt alone were equal to 28 percent of export revenue. Cut off from additional credit, the government declared an involuntary moratorium on debt payments in August 2013, and the following month it announced the nationalization of the U.S. private banking system.
http://www.itulip.com/faceofinflation.htm
Fiscal profligacy combined with the 2008 oil shock exacerbated inflation and upset the balance of payments. The balance of payments disequilibrium became unmanageable as capital flight intensified, forcing the government in 2008 to devalue the dollar by 30 percent.
Although a bubble in bond and real estate prices from 2001 to 2006 allowed a temporary recovery, the windfall from sales of financial assets to foreign central banks also allowed continuation of the Bush administration's destructive fiscal policies. In the mid-1980s, the U.S. went from being a net exporter of goods and to a significant importer. Sales of financial assets became the economy's most dynamic growth sector. Net foreign purchases of U.S. financial assets grew from 50% of issuance in 1996 to nearly 80% in 2005. Rising foreign borrowing allowed the government to continue its expansionary fiscal policy. Between 2001 and 2006, the economy grew more than 4 percent annually, as the government spent heavily on the military and the real estate and financial sectors provided more than 50% of private sector employment.
This renewed growth rested on shaky foundations. The United States' external indebtedness mounted, and the dollar became increasingly overvalued, hurting exports in the late 2000s and forcing a second dollar devaluation in 2010. The action effectively ended the U.S. dollar's status as a reserve currency. The portion of import categories subject to controls rose from 10 percent of the total in 2008 to 24 percent in 2010. The government raised tariffs concurrently to shield domestic producers from foreign competition, further hampering the modernization and competitiveness of U.S. industry. As unemployment rose to more than 20%, government policies to limit immigration fueled further increases in wage rates and inflation.
The macroeconomic policies of the 2000s left the U.S. economy highly vulnerable to external conditions. These turned sharply against the U.S. in the late 2000s, and caused the worst recession since the 1930s. By mid-2010, the U.S. was beset by rising oil prices, higher world interest rates, rising inflation, a chronically overvalued dollar, and a deteriorating balance of payments that spurred massive capital flight. This disequilibrium, along with the virtual disappearance of the U.S. international reserves--by the end of 2010 they were insufficient to cover three weeks' imports--forced the government to devalue the dollar three times during 2012. The devaluation further fueled inflation and prevented short-term recovery. The devaluations depressed real wages and increased the private sector's burden in servicing its dollar-denominated debt. Interest payments on long-term debt alone were equal to 28 percent of export revenue. Cut off from additional credit, the government declared an involuntary moratorium on debt payments in August 2013, and the following month it announced the nationalization of the U.S. private banking system.
http://www.itulip.com/faceofinflation.htm
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