Question

What has had the biggest impact on the U.S. economy in the past 10 years?

Answer 1

Biggest impact on the U.S. economy in the past 10 year were:

1.    2007: Housing Crisis

As many as 10 million homeowners lost their homes during the subprime mortgage crisis. Housing prices fell in 2006. At the same time, the Federal Reserve raised interest rates. Many homeowners had adjustable-rate mortgages that followed the fed funds rate and reset after the first few years. Homeowners were surprised by suddenly higher payments. They couldn't sell their houses because prices fell below the mortgage value. So, the banks foreclosed, forcing them to leave their homes. Government programs to save the homeowners failed.

2.    2008: Global Banking System Stopped Working

On Monday, September 15, 2008, Lehman Brothers announced bankruptcy. This was the day after Treasury Secretary Paulson said no more bailouts. He refused government protection for Lehman's $60 billion in uncertain mortgage assets in a weekend negotiation with potential buyers Barclay's and Bank of America. At the time, he thought the amount was too much, and he was being pressured to keep the government off the hook. Now, it seems like small potatoes. Lehman's Brothers bankruptcy panicked global bankers, leading to The Great Recession.

On Wednesday September 17, banks withdrew $160 billion from ultra-safe money market accounts. Banks were hoarding cash for write-downs on bad mortgages and withdrawals in bank runs. By the end of the week, banks held $190 billion in cash, as opposed to a normal $2 billion reserve. Hoarding led to an increase in LIBOR, which affects $360 trillion in loans and credit card assets. The credit freeze led to a cash shortage for most businesses. In response, the Federal Reserve lowered interest rates to zero, reducing LIBOR. However, banks continue to hoard cash today to write down foreclosures.

3. 2008: Stock Market Crash

On September 29, 2008, the Dow Jones Industrial Average fell 777 points, the largest point drop in any single day. Between October 9, 2007 and March 6, 2009, the Dow Jones Industrial Average dropped 50 percent. This was the worst decline since the Great Depression, when the Dow fell 80 percent. It occurred in only 17 months, while the Great Depression drop took three years.

4.      2008: Billions in Bailouts

On September 18, 2008, Treasury SecretaryHank Paulson and Federal Reserve Chairman Ben Bernanke asked Congress for the largest bailout package since the Great Depression. By October 3, the Senate passed the $700 billion bailout bill, now known as the TARP program. The program was initially designed to purchase toxic mortgages from banks, freeing up cash for more loans. However, it was taking too long to implement, so on October 14, the Treasury used $350 billion for the Capital Repurchase Program, which purchased preferred stock in major banks.

On Tuesday, September 16, AIG, the world's largest insurance company, announced it was going bankrupt. Federal Reserve Chairman Ben Bernanke said that AIG's bailout made him more angry than anything else in the recession. Like a hedge fund, AIG took risks with unregulated products, such as credit default swaps. It wrongly used cash from people's insurance policies. The Fed stepped in to avoid the collapse of the $3.6 trillion money-market fund industry, which invested in AIG debt and securities. Most mutual funds also owned AIG stock.

President Barack Obama's $787 billion Economic Stimulus package sought to prevent the re-emergence of the panic that gripped investors in 2008. It was to be spent over three years. It has been criticized for not fixing the economy fast enough. By July 2009, over $179 billion was allocated to Federal agencies. It was only supposed to spend $185 billion in 2009. It was designed to increase GDP growth by 1.4%-3.8% by the end of 2009, and prevent 2.3 million job losses. In Q3 2009, the economy would have only grown .7%, not 2.8%, without the Economic Stimulus Program.

5.      2011: Japan's Tsunami and Nuclear Disaster

On March 11, 2011, a 9.0 magnitude earthquake and 100-foot high tsunami pummeled Japan's northeastern shoreline. At least 28,000 people died or went missing. Over 465,000 were displaced. To make things worse, the waves damaged the Fukushima nuclear power plant, creating radioactive leaks.The "Triple Disaster" devastated Japan's economy. It devastated the country's nuclear industry, and convinced Europe to cut back its reliance on nuclear power. When Japan's suppliers shut down, it slowed a global economy still recovering from the 2008 financial crisis.

6.    2014: Obamacare Adds Coverage for 20 Million

The Affordable Care Act expanded health coverage to 20 million people. They could receive low-cost preventive care for chronic illnesses. That kept them out of expensive emergency rooms. As a result, the rise in health care costs slowed. That may help the United States receive a better score from the World Health Organization. As of 2016, the U.S. cost of health care was highest in the developed world, with the worst infant mortality rate. All of the other 32 developed countries had universal health care.

7. 2015: China Emerges as the World's Largest Economy

In 2015, China became the world's largest economy. That shifts the economic balance of power, putting the European Union second and the United States third. China is also the largest holder of U.S. debt. It owns $1.2 billion of U.S. Treasuries. This gives it leverage. For example, in August 2007, China threatened to sell part its holdings if Congressional pressure to raise the value of the yuan continued.

8.      2015: Greece Debt Crisis

The Greece debt crisis warned of the danger facing other heavily indebted countries. In 2015, Greece nearly defaulted on its debt and exited the eurozone. It triggered the Eurozone debt crisis, creating fears of a global financial crisis. Although the crisis was resolved, it threw into question the viability of the European Union itself.

9.     2017: Hurricane Harvey Cost $180 Billion

Hurricane Harvey was a Category 4 storm that hit Texas on August 25, 2017. It caused $180 billion in damage. That’s more than any other natural disaster in U.S history, except the largest estimates of Hurricane Katrina damage. Texas Governor Greg Abbott will need more than $125 billion in federal relief. It affected 13 million people from Texas through Louisiana, Mississippi, Tennessee and Kentucky.

10.      2018: Cost of War on Terror Escalates U.S. Debt

The 9/11 attack led to increased defense spending - first in Afghanistan and second in Iraq. By 2006, the War on Terror had increased the defense budget to $600 - $700 per year, creating an annual budget deficit of $500 billion per year. By 2007, the debt had almost doubled to $9.2 trillion. By 2018, it added $2 trillion to the debt.

Past 10 Years Of U.S. GDP Growth Reveal Disturbing Trend

The major economic release last week was the second estimate of 2014’s fourth quarter and annual Gross Domestic Product (GDP). The GDP is “a measure of the value of the production of goods and services in the United States, adjusted for price changes.” The ‘first’ estimate that came out last month showed the economy growing 2.6% in the 4th quarter. This ‘second’ estimate (based on ‘more complete source data than was available for the ‘advanced’ estimate last month’ shows that growth was actually less—coming in at 2.4%.

I covered this report last week, while discussing why I believe that the current correction in longer-term bonds (i.e. 20+ Year Treasury Bond – TLT) is a countertrend move. But putting investment thoughts aside for now, I want to look more closely at the trajectory of U.S. economic growth.

To put the recent GDP number in perspective, all we have to do is recall that just a few months ago we were being told by the financial media that the economy was growing and that we were gaining traction. And although third quarter GDP did increase 5% compared to what it was in the same quarter in 2013, economic growth of 2.4% is not nearly as good. Sometimes we lose sight of the bigger picture when we focus on just one quarterly number. If we zoom out and look at what the actual economic growth has been going back to 2007, there is a disturbing trend that emerges.

Here is the annual GDP growth by year:

2007                1.8%

2008 -0.3%

2009 -2.8%

2010                2.5%

2011                1.6%

2012                2.3%

2013                2.2%

2014                2.4%

The average annual GDP growth of our economy over the last 8 years was only 1.2% per year. Granted, that takes into account the economic impact of the Crash of 2008 where GDP was negative in both 2008 and 2009. So let’s drop out those bad numbers and just look at the last 5 years when we saw the stock market recover. The average annual GDP over the last 5 years is still only 2.2%. That is far below the government target of 3 to 3.5%