Where the US Economy Will be a Year from Now

The US economy was growing steadily for the past(a) years. Currently, however, the US is facing challenges pertaining to the economy. Some troubles began to manifest as early as 2006 when a sharp decline in the housing starts was first observed. The subprime mortgage crisis occurred. Stock mart crashed and spendors fleed. The sparing swag continued and the dreaded inlet occurred. US officially announce it was in recession in celestial latitude 2008. Deflationary Ho go for Prices in the US Once the stinting crisis sets in, households at the lower income bracket felt the pinch the most.People with no nest egg yield no fall back option. They argon pass oning nones for home mortgages but m unmatchedy becomes scarce. Consequently since they be unable to pay the mortgage and their houses get foreclosed. An other effect of the deflationary house prices in the US is that foreclosed homes now created a growing list of unsold houses each old or new inventories. This postal servic e is much pronounced in sealed grocery stores such as urban Florida, California, Nevada, Atlanta and others. The lack of buyers for these houses set the prices to stabilize or in most cases, they go vanquish.Once residential foodstuffs experience this problem, potential homebuyers result not commit to buying a house. This is because they want to hold on to their bullion until the home prices go down to its lowest level. Thereby giving their money a part of leverage. What suffer be bought in hundreds of thousands vaulting horses before could be bought in a untold lower join now. With the homebuyers holding on to their money for as colossal as possible and the house inventory growing by the fleck due to foreclosures, a dilemma ensues.This is the biggest reason why homebuilding industry is the one most touch oned by the frugal crisis America is facing today. 2010 economical Outlook federal Reserve Chairman Ben Bernanke announced virtually well news on May 5, 2009 that the three year economic slump the US has been experiencing is showing tell-tale signs of reco very. He projected that the recession could end new-fang conduct 2009, if US lead not experience relapse on recognize problems. Bernanke spoke before Congress saying economic indicators atomic number 18 hinting to a possible recovery towards the end of the year. further the climb out of the proverbial tunnel bequeath be nothing but easy.Bernanke projected that unemployment cases will go even higher even after the recession is over. Unemployment is truly cogitate to reach its peak in 2010. Also, result will be slow. The said forecast is based on the effect of the continuous get of the economic system. The government has taken more or less steps to stall the effects of the crisis like injecting economic stimulus and lowering interest rates and the results are now showing. If a relapse occur in the financial situation could drag the economic recovery efforts down. U. S. stock food markets take for shown a lot of check recently.The Standard & Poors 500 index grows to 35 percent since frame in which indicates that consumer spending has steadied and the decline in the housing starts prevail tardily stopped. Bernankes forecast that US will peg an economic growth at 2 percent in 2010 and 4 percent in 2011. Excess economic die away or the add-on in amount of idle plant and equipment would keep inflation low. Also, the US Central cant will maintain minimal interest rates for an extended period. Economists believe that the United States will recover from the recession faster than Europe, due to the Federal Reserves quick action on the situation.The International Monetary Fund announced in April 2009 that Europes recession might continue in 2010. Deflation and Inflation The thick economic recession felt all over the United States has led to an all-time low in consumer confidence. It has likewise affected negatively the banking system. These factors pr ogress to addd the risk of deflation. To counter the deflation risks, policy makers and the Federal Reserve have to adopt measures that are not commonly practiced in pronounce to ward off deflation by increasing the amount of money cosmos circulated. Policy makers had to expand fiscal spending.And the nominal interest rates are circulating(prenominal)ly pegged at almost 0% since December 2008 to ease up credit and its availability. This has saved the pastoral from being on the brink of deflation. But the same solution could create problems later as the huge increase in base-money has caused a number of people to believe that Feds actions could lead to inflation later. Inflation is not a problem as of the moment because households have decreased spending to a minimum and the money are hidden in bank vaults. Excess economic slack or the increase in amount of idle plant and equipment would also keep inflation at bay.The unused factories and growing unemployment do not permit busi nesses to increase prices of products and wages of employees. Once economic recovery begins and economic slack levels off, increase in money supply would finally spread way to increase in prices of commodities and wages. To prevent this from happening, the Fed must ask out the money it has infused to the financial system while in a recession. If the Feds cannot devour this quickly, rampant inflation would ensue. Hyperinflation Hyperinflation occurs when the prices will go up as the silver falls.This is the next challenge that US might face. This dilemma however could conduce to some advantages to the businessmen. Selling US buck and Japanese yen the devil currencies that will de hold dear after recession would be highly profitable. in the first place hyperinflation could go full blast lead astraying dollars and yen would act as a lot of money to traders. Once dollar value goes down. The value of the dollar sold would probably be twice its value during hyperinflation. E ffect of the Dollars military rating Dollar and Euro currencies are recently on a see-saw battle for supremacy.US dollar declined against the Euro in the past years until recently. The current global economic slump has caused the Euro to devaluate against the US dollar. Should the tide turn in kick upstairs of the Euro again, a decline in the US dollar could actually bring some advantages lower dollar could mean more opportunities for export since the goods being sold from the US are relatively cheaper now compared to the Euros. the discounted US dollar will lead to a alien investment boom that would eventually slow down investments being poured in the European countries. Decrease outdoor(a) trade deficitDisadvantages of a declining dollar rate vs Euro going or visiting to Europe would mean paying higher amount for goods and serve American importers would pay more for imported goods Rising inflation American credit becomes less attractive to distant investors Interest rates will go up to be able to finance budget deficit Countries to Invest In The Euro is not the only currency that is rising against the US dollar the Australian Dollar, and the Canadian Dollar both hold some promise. The Euro is a good alternative currency to the US dollars for investors.Also, in that location is a possibility that difference in interest rates in the US and Europe may increase and since returns usually increases along with interest rates, the Euro will then be more profitable to investors. If the devaluation of dollar occurs, countries that hold argillaceous(a) amounts of US dollars may shift to using the Euro currrency in their reserves. Some countries have already shifted to Euro reserves such as Russia, Switzerland, the United Arab Emirates and Venezuela. Iran even wants to use Euro in quoting its Oil Exchange. If this scenario develops what might become of the US economy? one and only(a) likely scenario is that foreign investors who bought a huge chunk of s hares of stocks might sell their shares specially the S&P 500 stocks. The results could not be certain though because the effects of financial instruments could not be easily determined. cash levels depend to a large extent on the implore for the domains currency which is the result of economic activities and interest rate differential. more or less likely, US will experience inflation making imports more expensive. On the bright side, this would also decrease external trade deficits which is good for US economy. conflicting investors however will be hesitant to borrow from American banks or financial companies. The Federal Reserve might need to increase interest rates to be able to fund budget deficits which would affect the economy adversely. For those who want to invest in the market for currencies or the foreign exchange market or currency trading there are a number of options available. These include forex futures, currency ETFs, export-benefiting equities as well as preci ous metals related instruments (such as mining stocks). It is good to invest in precious metals. Investing in the BRICs (Brazil, Russia, India, and mainland China) would also be advisable.BRIC or BRICs is an acronym for the current notably fast growing developing economies Brazil, Russia, India, and China. Goldman Sachs in 2001 declared that the combine economic development in these places could overshadow the economies of the richest countries in the world. There has been on-going speculations as evidenced by proofs that the BRICs countries are planning to form an league to create enormouser power. Investing in these places therefore would provide a better alternative to US investments since these countries development are greater compared to other countries.Invest wisely by focusing on Indian and Chinese companies that do not rely on American market to be able to buffer fluctuations in the US economy. According to economist Stanley Roach, China will recover faster than the re st of the world. This is because the structure of Chinas economy is very open. Export and import shares in this country accounts for a very high percentage of the worlds total. The recession sure as shooting affected its export markets negatively. Also, the Chinese government reacted aggressively to the situation and instituted some reforms immediately.According to Roach, Chinas economy will recover more swiftly if the country becomes more assertive in its implementing plans to encourage local private function at the same time they should find ways to decrease its heavy reliance on exports. Another country that holds a lot of promise would be Canada. Before the recession, Canadas economy reached parity with the US dollar on September 20, 2007. horse opera Canada particularly is gaining a lot of strides in the economic department. But Eastern Canada hardly lagged behind. Employment rates was at its 30-year-low.Ontario is backed up by its knowledge-based businesses and Torontos inv estment sector was doing well. Western Canadas economic boom was brought approximately by the world commodity markets particularly China. The mega-boom conditions in Alberta and Saskatchewan were due greatly to its oil reserves in the Oil Sands of Alberta. The reported oil find in Albertas sands deposits is believed to be able to cater to the worlds demand for a century or so. The excitement for the black gold stripping brought about by the pouring in of billions of dollars in infrastructure has spurred Alberta and Saskatchewan industries.The provinces economic success has trickled down on its neighbors British Columbia and Manitoba as these deuce cities have experienced mini-booms of their own. This is one particular reason why Canada particularly Alberta and Saskatchewan would always be attractive to investors. Oil commodity is very of import and would not be greatly affected by recession. The currency movements in the U. S. and Canada have opposite implications when it comes to the effects of general price inflation in both countries. In the U. S. , import prices are climbing because the dollar value is falling. In Canada, it is the opposite.Furthermore, in Canada, the impact of any future rise in commodity prices (which are usually specified in U. S. dollars) will be blunted. With a stronger dollar, however, Canadians need to lower down the prices of goods and services in high society to compete with other countries selling same export commodities. Also, Canada needs to destination an important inconsistency with the Chinese Yuan. The Yuan, since it floated in mid-2005 has been appreciating versus the U. S. dollar. But it has spiralled down versus the Canadian dollar. The irony therefore is that Chinese goods are getting cheaper in Canada and costlier in the US.Foreign Exchange Market or gold Market Foreign exchange market or the currency market is all about trading currencies. Even in these difficult times in the economy, there is always one curren cy or two that is growing. The stock market is in a slump right now. It is the currency market that has remained runniness which means it is possible to make money even under gnarly times. The US dollar, as a matter of fact, had gone up as the S&P 500 went down. Investors in the currency market have earned a lot of money in the past months. Currency market is one safe investment that most investors.Why does US dollar rise even if US is in recession? This is because during economic recession, investors put thier money where they consider is safer. The stock market is simply as well as volatile and uncertain at this point. So investors turn to look for the more stable options such as the moderate currency market by investing in US Treasuries. US treasury securities are debt pay instruments issued by the US Department of the treasury. These include four types treasury bills, treasury notes, treasury bonds and treasury inflation protected securities (TIPS).All of these are very li quid and can be traded in a secondary market or the aftermarket. This is the reason why when the stock market crashed and panic sets in, investors desire the more liquid and safer US treasuries. The surge in demand for US Treasuries buoyed the value of the dollar. Forex markets or FX markets is also other good way to invest money. FX is where one can trade currencies. FX serves to ease trade and investment among world-wide currencies such as US Dollar, UK Pounds, Japanese Yen and other currencies. In this money market, currencies are traded against each other.Forex is the biggest financial market today with more than $3 trillion daily turnover. Speculators market one currency for another in order to gain a profit. Financial traders are draw to this market because it is available 24 hours daily, five days a week. Forex market can be found in four cities New York, Lon wear, Sydney and Tokyo. investment in foreign exchange can be done in several ways 1). buying curency shares ETFs . The method is similar to buying stock. 2). undetermined a bank accont with local bank that accepts foreign currencies. 3). Buy foreign currency from online brokers and 4).Use online forex trading platform such as eToro, iForex and others. In tough times, it is always good to diversify the investment portfolio. The adage dont put all your eggs in one basketball hoop proves to be true now more than ever. Since the stock market suffers great losses now, it would be good to offset it with investments that would surely create gains which the US Treasury provides. Since the currency market represented by the US Treasury securities are not associated with the stock market, investing in the currency market would serve as hedge investments and a good way to diversify investment portfolio.