The US Finance


USA Finance

It is a general conception that US is the greatest nation (speaking in terms of economy), but there are a few facts which do not support this view about US. In the year 2009, the financial situation of US included a debt of $50.7 trillion. This huge amount of debt was owed by households, governments and businesses. This net debt was representative of more than 3.5 times the annual GDP of the nation. Also, in the first quarter of 2010, the domestic and financial liabilities shot up and became $106 trillion.

The major part of the debt, which is owed by the financial sector of the nation, is of the form of GSE (government sponsored enterprise) and agency backed securities. By agency backed securities it means the securities that are guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac and other federal agencies. In this group are also included the mortgage pools in collateralized mortgage obligations which are used as collaterals. The fraction of the net debt of the financial sector which is represented by GSE and mortgage pools related to the federal department has remained constant at $863 million. In other words it can be said that it is 47% of the total debt of the financial sector in the year 1946. But since then these figures have increased manifolds and has become $8 trillion in 2009. These are followed by bonds which are representative of a large section of the debt of the financial sector. The share of bonds in the debt of the financial sector increased from 6% to 24% from the year 1946 to 1953. Until the 1970s this level was maintained but after that the share fell by 10% and the share become 14%. During this period, the Federal Reserve chairman, Paul Vocker proposed a strategy to fight stagflation. This included the raising of the federal funds rate, this in turn resulted in the prime rate peaking and becoming 21.5%. This made financing through credit markets quite expensive and this prohibited the use of credit to a large extent. In the 1980s the bonds attempted to recover and represented almost 25% of the debt of the financial sector. Change came again in the period from 2000 to 2009, the bonds shot up and represented 37% of the debt, this became equivalent to $5.7 trillion. In 2009 these bonds along with the GSEs made 88% of the debt of the financial sector.

Like this there are many other facts to show what a terrible debt crisis the strongest economy of the world is currently facing. The finance sector also saw almost 4000 jobs disappear in the past month. These statistics were provided by the Bureau of Labor Statistics. Also, in the year 2009 the US state and local government together owed a massive debt of $2.4 trillion dollars which represented 16.5% of the total GDP. Of the net debt owed by the nation almost 15.2% is owed to foreign sources. These facts might just compel one to think again, on whether US is the greatest economy of the world or not.