Reanalysis on Influence of Financial Crisis on the United States---Shang Hong

Shang Hong    Researcher of China Institute for International Strategic Studies

    This financial crisis is the inevitable byproducts of the US non-monopoly capitalism and the US economy is seriously hit. After Obama took his office, a series of “rescue” packages were introduced successively, stopping the US economy from “falling” and beginning to be on a stable rise. The US economy entered into the “Post Financial Crisis Era”.

I. All-around Influence of the Financial Crisis on the United States

This financial crisis is the most serious in the United States since the “Great Depression” in 1930s, impacting the idea, concepts and domestic and foreign policies in an all-around way.

In terms of economy: first, the constitution of finance is greatly undermined. Since the outbreak of financial crisis, over 100 large-scale financial agencies in the United States went bankruptcy or annexation. Second, the substantial economy was heavily hit. After the burst of real estate bubbles, the pillar industries in the US economy like automobile industry and steel industry were plunged into trouble one after another. General Motors Corporation applied for the insolvency protection and the utilization of capacity of steel industry fell short of a half of production capacity. Third, the development pattern of the United States was accused by the people all over the world. The disadvantages of American non-monopoly capitalism were revealed in this financial crisis. After this crisis, the US government strengthened the macro-control over the economy and purchased and took over many financial agencies and entity enterprises, swinging back from “non-monopoly capitalism” to “state capitalism”. Fourth, the hegemonic position of US dollars is impacted. The financial crisis frustrated the international community in the US dollars and the hegemonic position of the US dollars suffered the second hit since the collapse of Bretton Woods System in 1970s.

In terms of politics: the financial crisis boosted the annoyance of the masses of American people at the US ethos led by the conservatism for such a long period. They voted for Obama and supported him to take the position of US president, ending over-30-year-long “conservative revolution”. Isolationism began to be on its rise. The new poll showed that isolationistic mood of the Americans hit the height for the recent 40 years.

In terms of society: after the crisis, the Americans became conservative and the floating population across the states in the United States decreased to the lowest point since the World War II. The personal saving rate of the United States reached more than three times over the low point in 2008, arriving at 45%. The investigations showed that many Americans meant to save 15% of their incomes.

In terms of diplomacy: Through G20 Financial Summit initiated by the United States was doubted to “shift the burdens of the crisis”, it was the only choice for the United States given its falling in strength. Obama had to emphasize the application of “smart power” and show its new posture with “contact, adoption and cooperation”, cooperate with traditional allies, coordinate with emerging powers, conduct dialogues with “hostile nations” and seek to create a “multiple-partner-world” in order to concentrate their attention on responding to financial crisis. The United States implemented a more and more practical foreign policy.

II. Measures Taken by Obama Administration to Cope with Financial Crisis

After Obama administration took their offices, the financial crisis and its geographical and political influences were listed as the “primary safety concerns” in the United States, greatly elevating the role of economic safety in the national safety and energetically checking the spread and development of financial crisis.

     Domestic Policies: Obama put the stress on adjusting the development pattern and intensifying the macro-control over economy; actively promoting the green revolution and energetically creating new economic growth point. First, formulate financial stability plan of a total value of US dollars 2,000 billion, including establishing the “financial stability trust” funds and “public and private investment fund”, improving consumer and commerce credit quota and setting up new framework for administering and supervising enterprises. Second, implement economic stimulus packages of a total value of US dollars 787.2 billion; It was the largest spending plan the United States made since the World War II, 35% of which was used for tax reduction and 65% of which was used for investment and increase in rescuing the unemployed and poor people. Third, introduce housing rescue package of the value of US dollar 275 billion in the hope of ensuring the stability and mobility of real estate market by decreasing monthly payment for home mortgage lending, allowing refunding, establishing “homeowners stable funds” and doubling the amount of financing of “Fannie Mae” and “Freddie Mae”. Fourth, promote the green revolution. The US government plans to invest UD dollar 150 billion in the future 10 years to develop new energy sources like wind energy, solar energy, hydroelectric power, nuclear power and terrestrial heat; urge the congress to pass American Clean Energy and Security Act; set up a national clean energy-funding agency. Fifth, purchase national debt and bond. On March 18^th, 2009, the Federal Reserve Board announced that it planned to purchase long-term government bonds of US dollar 300 billion, mortgage lending securities of US dollar 750 billion and “Fannie Mae” and “Freddie Mae” bonds of US dollar of 100 billion in 6 months in order to decrease interest rates of home mortgage lending and other consumer credit. Sixth, introduce budgets. Obama administration planned a 2010 budget of US dollar 3,600 billion, an increase of 5.7% over that in 2009. The investment in medical care, education and energy was greatly increased and UD dollar 250 billion was provided by the Ministry of Finance as the “contingent reserve” to stabilize the financial system.

Foreign Policies: Obama administration puts the economic diplomacy to the foremost position in the whole US diplomacy. First, put the focus on the emerging market states, advance and hold G20 Financial Summit twice, urge international community to stimulate the economic development, strengthen the concerted action between the financial supervision and the United States. Second, make a compromise in enhancing the representation of developing countries in the International Monetary Fund, but make no change in US-related core interests issue like the role of the United States in order to ensure the reform in the international financial system is favorable to the United States and consolidate the United States’ leading role in the international economic and financial affairs. Third, actively promote economic balanced growth strategy and require other countries to open their markers wider to the United States.

III. The USA in “Post Financial Crisis Era”

The US economy achieved the positive growth of 2.2% and 5.7% respectively in the third and fourth quarters of 2009, and Dow Jones index came back to over 10 thousand points, rebound of over 60%. The signs showed us that the US economy revived from the most serious recession since World War II and entered into the “Post Financial Crisis Era”.

The United States will keep its hegemonic position for a long period. Though this financial crisis weakened the US strength relatively, no fundamental change happened to the US hegemonic position. First, the US economic aggregate still ranks in the top. In 2008, GDP of the United States was over US dollar14,000 billion, more than the sum total of following four countries including Japan, China, Germany and the UK. Despite the fall in the position of US dollar, it is till the key currency for international trade, investment and settlement. The leading position of the United States in the international financial system will not change for a long period. Second, the United States is still strongest in its military power. The US congress passed total of funds allocated for the national defense in 2010 reaching US dollar 636.3 billion, over a half of the total global military spending. Third, the US has obvious strength in innovation of science and technology as well as knowledge. The investment of the United States in science and research accounts for 45% of the total investment in the world; the number of annual average overseas students in the United States makes up 30% of the number in the world; Obama invested US dollar 67.7 billion of the economic stimulus package in the clean energy and energy-saving transportation so as to grab the commanding height for the future development. Fourth, the United States has strong self-regulation ability.

It focuses on economy and people’s livelihood in domestic policies. At first, reinvigorating the economy is the focus of its policy. First, advance the financial reform, build strong and healthy financial market; second, encourage scientific and technological innovation and invest in building safe and clean nuclear power plant; Third, increase foreign trade export and reform import control; Fourth, improve the education and reinvigorate community universities to lighten the burdens of people. Next, collecting the strength is the core of the policy. Put its priority to employment, deficit and health care reform that the masses of the people concern most; First, set creating jobs as the “first priority” of the governmental policy in 2010; boost the employment by increasing the investment in infrastructure, developing clean energy, encouraging the innovation and increasing the processing industries’ Second, whittle down the financial deficits. Spending of the Federal Government would be frozen for three years except for security, medical care and social security; no tax reduction was planned for the high income group and the Cross-Party Committee on Deficit Reduction was set up. Third, promote the medical care reform and reduce the burden of medical care on small-sized enterprises and families. Finally, bridging the diversification between two parties is the guarantee of the policy. Obama called on the Democratic and Republican Parties to remove the diversification and make joint efforts to resolve the current difficulties as well as expressed his desire to advance the agenda on reforming legislation with the cooperation between the two parties.

Its foreign policies are particularly tough. At present, the foreign policies of Obama administration are particularly influenced and restricted by its domestic politics. First, it shows its toughness of “smart power” in its diplomacy”. Once Obama administration failed to solve Iran and North Korea nuclear issue by diplomacy, it is planning to intensify the sanctions; when it fails to achieve its goal of “outsourcing responsibilities” to emerging big countries like Russia and China, it may make due adjustment in the “comprehensive engagement” policy; ignoring China’s objection, it insisted in selling weapons to Taiwan and meeting Dalai Lama. Second, it sets anti-terrorism and nonproliferation as the main goals of its foreign policies. The US Director of National Intelligence submitted 2010 Threat Assessment Survey to the Congress and listed the combination between terrorism and weapons of mass destruction as the “pressing security threat” for the United States. Obama administration would pay more attention to role of anti-terrorism in the foreign policy and fully introduce the new strategy in Afghan as well as intensify its observation and investment in Yemen and Somalia so as to check the development of global terrorism. Third, it puts focus on ensuring the interest of the United States in the Middle East and “arc of instability” of South Asia. Afghanistan War, Iran Nuclear Issue and Israeli-Palestinian Conflict are all the rigorous challenges for Obama administration. In 2010 Guidebook for Chairman, Joint Chiefs of Staff, it was regulated clearly that the primary task for the US army was to guarantee the “key national interests” of the United States in the Middle East and the South Asia.

Obama and Democratic Party Face the Major Tests. Up to now, Obama has made some progress with new policies but no substantive breakthrough has been made yet for the Americans have not been benefited from the policies. In the latest poll, the support rate for Obama has fallen from the 70% at the beginning to present 44% and most Americans do not think Obama should be reappointed. The decrease in support rate for Obama directly influenced the election outcomes of Democratic Party. Though passing of Health Care Bill was viewed as a “signal victory” of Obama, it plunged the U.S. society into secession. At present, the masses of American people concern about the remaining high unemployment rate and climbing financial deficits most, and balancing the creation of jobs and reduction of deficits has become the key for Obama to regain the popular support. In 2010 State of the Union Address, Obama declared that he did not accept “the USA coming second” to show his confidence in the role of his new policies in reinvigorating the United States. But facing the rigorous domestic and foreign problems and powerful grip of the Republican Party, Obama was beset with difficulties in achieving his goals.