Economic Problems
- The USA and EU face ongoing economic challenges, these include:
- Debt
- Economic restructuring
- Unemployment
- Social costs
Debt
- In 2007-2008 there was a global debt crisis which started in the US
- It rapidly spread around the world as so many countries are dependent on the US as a trade partner
- Prior to 2007 there were low interest rates and many borrowers took the opportunity to take out loans
- The banks allowed even those people with poor credit history to take loans and mortgages (sub-prime lending)
- In 2006 house prices fell and the borrowers owed more on their homes than they were worth
- Interest rates increased and many people could no longer afford the repayments
- This meant that the banks and lenders went out of business
- In 2008 Lehman Brothers bank filed for bankruptcy this led to the stock markets and price of oil falling
- Governments around the world tried to bailout the banks and prevent the collapse of the banking system
- In the UK Lloyds bank and RBS were given government funds to prevent their collapse, Northern Rock and Bradford & Bingley were nationalised
- It is estimated that these interventions cost £137 billion significantly increasing the UK's debt
- The increase in debt was common in many countries around the world
- The UK debt was £2.4 trillion in 2021 and the US debt was $30 trillion
- and led to:
- Reduced spending on public services
- Increased unemployment
- Lower demand for goods and services
- Political instability
- The US increased their borrowing and national debt to avoid a reduction in consumer spending
Economic restructuring
- There are two aspects to economic restructuring:
- The global shift of manufacturing to emerging and developing countries
- The shift in employment in developed countries to tertiary and quaternary economic sectors
- This has led to deindustrialisation which causes:
- An increase in unemployment in traditional manufacturing areas such as South Wales and the North-West of the UK
- A spiral of decline (negative multiplier effect) where people leave the area, so services and quality of life decrease so more people leave
- A need for investment in these areas to attract new businesses and jobs, this places increased financial pressure on the government
Unemployment
- The USA and EU have experienced increased unemployment as a result of:
- Deindustrialisation
- Global financial crisis
Unemployment in the US and Eurozone
Social costs
- In areas where deindustrialisation has occurred the social costs have been high, many areas have experienced:
- An increase in people with mental health problems
- A decrease in quality of life
- An increase in migration from the area
- An increase in crime and vandalism
- This has led to a need for investment, regeneration and retraining, all of which are expensive
- The US and EU also face additional social costs from:
- An ageing population
- Decreasing working age population
- This has led the UK, France and other countries to increase the state retirement age in a bid to reduce costs