United States No Longer the Biggest Economy in the World

So after a week that saw the Fed rush to inject cash into the system, several high profile hedge fund failures and the near collapse of Bear Stearns, Americans now have to deal with the fact that they no longer possess the world's largest economy. That title now belongs to the "Euro Zone", meaning all countries that currently use the Euro as their currency.

Goldman Sachs measured the total 2007 GDP of the United States and compared it to the total GDP of the fifteen countries that make up the "Euro Zone" and then converted the total GDP of the "Euro Zone" to US dollars. Given the rapid collapse of the American dollar, the total 2007 GDP for the Euros came out slightly ahead.

Why has the US dollar collapsed over the past number of years? A number of factors are involved - you can't just pin it on one thing. You have spiraling deficits caused in large part by the multiple fronts of the War on Terror; you have an American economy heavily reliant on oil which has caused an increase in inflation and a slowly of the economy; you have the subprime mortgage mess; you have the resulting heavy declines in the US housing markets; you have increased unemployment numbers. I could go on and on, but you get the point - there are many factors why the US dollar is so weak right now. The US dollar used to be THE currency that foreign countries would want to hold in their reserves (such as China). Now, more and more countries are switching out of the US dollar and into the Euro and other currencies such as the Japanese Yen.

The big question on everyone's mind right now is - is the US economy near its bottom, or is there more misery just around the corner? Forgive the American people for being a bit ornery right now - they really don't like being second in anything. The real question is - for how long will they be second, or is the end of an era?

Filed under: General Knowledge