The double digit economic growth that we have enjoyed for the last two-and-a-half decades is a sign of strength of the US economy. But, as is the case with most such indicators, double digit economic growth is subject to a wide range of widely varying economic variables. A double digit economic growth would, for instance, be a very good thing if it were accompanied by a double-digit percent increase in per capita Gross Domestic Product (GDP). If, however, it was accompanied by a ten percent decrease in GVA, then that would represent a rather worrying picture. In such a case, the doubling of the current real estate market's value would, on the one hand, constitute a significant economic stimulus for buyers who are having to compete with more inflated prices of existing homes.
At the same time, there are a variety of other economic variables that will have a major impact on the value of existing real estate. These include but are not limited to, interest rates, Federal Reserve policy, European Central Bank policy, the health of the American economy and a variety of other factors. All these factors have an effect on the price of real estate. As a result, there is no sure thing when it comes to predicting a double digit growth in the property's value. The best that can be done is to have a keen interest in these factors so as to make an intelligent assessment of the chances of a future slowdown in the market.
The current economic slowdown is, by all indications, being felt presently in the United States. The continuing rise in unemployment is having a major negative impact on consumer spending. This is being felt in the purchase of goods and services as well as in the refinancing of mortgage loans. In fact, a recent study has shown that the average lending rate on mortgages has risen to an all-time high, thereby implying that a greater amount of risk is being added to mortgages for borrowers.
The recent economic slowdown has, moreover, had an effect on the foreign trade as well. US trade deficit in particular has created a dent in the domestic demand for manufactured goods. The result is that, US companies have been forced to reduce their production for the month of January. While some of the reasons for the fall in manufacturing might be technical, such a situation is likely to create a number of difficulties in the future. On the other hand, suppose the US companies start ramping up their operations again in the next few months, it would imply that the US economy would recover quickly from such a hit, and this, in turn, will help the dollar.
Economic policies are likely to impact adversely on the strength of the US dollar. This is because, any change in the policy of the central bank will have a direct and indirect impact on the US economy. For instance, if the US Federal Reserve raises interest rates, the effect will be felt in the cost of living as well. If the Fed lowers interest rates, the impact is felt in the financing markets. Therefore, any change in the economic policy of the central bank would have a direct impact on the US economy.
This will not, however, imply that the US economy will witness an immediate recovery, or that the recession would be eliminated in a single shot. Given the number of economic factors affecting the economy, one cannot expect the rate of economic growth to suddenly shoot up, or to suddenly fall down. What we need . . . . . . to watch out for, however, is the possibility of a sharp slowdown. That is, a sharp slowdown can result in the slowing down of business activities leading to a decline in employment. In such a scenario, it is not surprising that the number of jobs being lost in the United States is increasing by a significant number.
It is for this reason that the chief economic advisors around the world are suggesting that the government should take steps to accelerate business formation and growth. One such recommendation is that the Central Banks of reserve currency nations should provide support for business enterprises operating in their territories. The argument advanced here is that a large number of business owners rely on imported goods. In case the latter loses the privilege of access to the Central Bank's currency, the latter may be forced to impose import duties on goods originating in the country in question.
Such moves would certainly lead to the reduction in demand for the domestically produced product. Such measures would certainly have a significant impact on the US economy and would have a significant negative impact on the economies of various other countries as well. Ultimately, the Central Banks of the Reserve currencies would not want to see their balance sheets depleted. If the Central Banks of the various countries fails to respond proactively to the demand deficiency in domestic markets, the impact would be felt not only in the US economy but in other countries as well. As such, it is important for the world economy to understand that a double digit economic growth is something which cannot be achieved in a single year, and would require a sustained effort from time to time.