American Dream's Doomsday..??
indar kumar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
5th August 2011 – S&P lowered America’s Debt rating from “AAA” to “AA+”
BUMMER was all one could manage to say to that. Though everyone was expecting something severe this news shocked the whole world let alone America. However the burning question is -
The 20th century was American century but is the 21st heading to be another’s?
Making sacrifices, cutting down costs, reducing debt bills, fearing pink slips, and social unrest is what makes a modern American today. Is America the same? Will America be the same?
The economy of the United States makes up nearly a quarter of the world’s economy. Cosmic natural resources, cohesive markets, and a committed entrepreneurial spirit had made America a superpower – Strong and Sturdy. During the 1990s GDP rose by 69%, the stock markets were at an all-time high, every sector in the economy was supposedly growing, outputs were on the rise and unemployment was below 5%. There were also some special attractions during this period including the “dot com” boom spearheaded by Intel and Adobe Systems. Well publicized IPOs were also a part of the framework. Some arguably call it the “American Dream” whereas others call it “The happiness bubble”. However, everything that rises must fall and the American Economy was no exception to it. Camouflaged in the big happenings, fundamental disasters were creeping in – at least that is what the experts had to say.
2008 brought an end to all the good things and became synonymous to Friday the 13th. The bubble bust and with it the “American Dream” The housing loans proved to be the instigator of the economic disaster and the whole structure was crumpled. Lehmann Brothers succumbed under the pressure and had to wind up the business. Banks like Citibank (NYSE: C) had to be bailed out. Recent reports suggest that this group which got a $45 billion bailout will now turn the government a profit. The government will start selling their 27% stake and to everyone’s surprise; the bank returned $20 billion out of the $45 billion with rest being converted to company’s shares, which at present time is valued at $33 billion. Similar case happened to AIG (NYSE: AIG) the government reduced its stake to 22% earlier in 2011 and the Treasury says that it has made a profit of $12.4 billion on the bailout. But the factual price tag of the AIG liberation goes well beyond the government's cost basis on the shares. Any reckon of the bailouts must embrace the lofty cost of moral hazard, the enduring impact of the Fed’s zero rate policy, as well as the questioning of policymakers' trustworthiness and the unanswered subject of having banks that truly are "excessively gigantic to go down."
Big 3 automakers namely: General Motors, Ford, and Chrysler were on the verge of bankruptcy and the retail sector became Achilles’ heel. The trickledown effect was that it caused millions their job, thousands were rendered homeless and the economy was left stranded. But soon President Obama took charge of the office and signed the “American Recovery and Reinvestment Act of 2009”. It was based on the “Keynesian Theory” and was aimed at reconstructing the economy. Thankfully enough, the Automobile sector has picked up and now Ford (NYSE: F) announced sales growth of 7% due to good sales of trucks and SUVs. The sale of the flagship truck rose by 10.9% and shares are also showing marginal improvement. General Motors (NYSE: GM) had the same story to tell. Although it announced growth of 16%, skeptics believe that its shares are still volatile. Cadillac, GM's best brand, was the spearhead of the growth that grew at 26.8%. This good news reflected in the share price as well where prices increased as much as 6%.
Presently, the economy has overcome the storm and is expected to grow GDP at 3.5%. The private sector seems to be bouncing back with better inventory levels and spending on capital equipment. The government stimulus i.e. the above mentioned act proved to be the backbone and will continue to support the economy. The labor markets have marginally improved and won’t show significant change at least for this year. However the concerned areas are real estate and unemployment. Real estate as expected has taken the biggest hit as the sale of new homes and properties are stalled. Unemployment percentages are still very high and layoffs are common. But with improving economy and better policies it is believed that the country will dissuade the concerns in the near future.
The Big question still remains unanswered: Has America lost its no.1 position? Well momentarily YES, due to the many problems, the reviving economy, and the debts those have accumulated. Nonetheless the race is far from over and even if there is “Vanilla Sky” at the minute, the next hour is sure to bring bright sunshine for UNITED STATES OF AMERICA.
Interested in Additional Analysis?
When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, our analyst runs through all of the key topics investors have understand with the chip giant. Better yet, you'll continue to receive updates as news develops for an entire year. Click here now to learn more.
indarkb has no positions in the stocks mentioned above. The Motley Fool owns shares of American International Group, Citigroup Inc , Ford, and Intel and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend Adobe Systems, American International Group, Ford, General Motors Company, and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.