The United States Economic Term Paper Example | Topics and Well Written Essays - 1750 words

The United States Economic - Term Paper Example It is thus important to analyze the macroeconomic causes and implications of price increase of commodities, collapse of the housing market and the ensuing financial turmoil. Main Body The global economy is currently in the grip of the maximum macroeconomic uncertainty in the last 25 years because prices of major commodities such as corn, coal, natural gas and oil have been consistently increasing in being triggered partly by the rapid increase in demand in developing countries such as China and India. However the prices in the housing sector, especially in the US have been declining. Housing prices in the US have fallen by almost 25 percent in relation to the 2006 peak period. The consequent financial turbulence that overwhelmed the world economy after September 2007 continues to retain its intensity in adversely impacting several sectors in the US economy. Although a number of economic forces have worked in creating this adverse macroeconomic situation, the two main causes have been the increase in the prices of basic commodities and the quick weakening of the housing market. ... Prices rose sharply because of many reasons but primarily due to the increasing demand for oil in many developing countries, even while prices of other commodities were rising. It is noteworthy that during the last 20 years global oil demand and consumption has increased considerably. For instance, consequent to the economic downturn in 2008, there was a decline in demand for oil in the US and in many European countries, but the decline was equalized by increased demand for the commodity in countries such as India, Middle East and China. In the US, factors such as poor crop yield, macroeconomic volatility and supply disruption appeared to have contributed in worsening the movement of prices (Jones, 2008). Another major macroeconomic shock to the US has been the large scale decline in housing prices that have been declining since 2006. Housing demand in the US was fuelled by demand created by the new economies of the late 1990s, by low interest rates during the initial years of the 20 00s and because of the constant loosening of lending policies. In view of such artificially created economic circumstances, housing prices in the US rose drastically prior to 2006 but soon started declining and by 2008 had declined by 20 percent. The beginning of the financial turmoil and America’s economic woes lies in the position of its housing market after 2006. People were attracted by low interest rates, flexible lending norms and by the perceptions that housing prices will continue to increase. As a result, large number of subprime borrowers who did not meet the credit standards in terms of credit record and application requirements were allowed to take credit and to buy homes. It is on record that during