The Broken Myth of America's Economic Prosperity?: Housing Bubble as the Source of the 2008 Global Economic Slowdown

The United States enjoyed an overwhelmingly successful 20th century as the world's sole superpower. Yet, from the turn of the century, the U.S. has faced many domestic and international challenges, most notable of which is the 2008 global financial crisis originated from its own housing market bubble. The combination of a series of policy failures, ever-widening global imbalances and rampant moral hazard problems created the bubble and ultimately dragged down the entire world economy. This paper provides five main policy suggestions to resolve the issues. First, the Fed's regulatory authority over investment banks and insurance companies should be reinforced. Second, the Taxpayer Relief Act of 1997 should only be applicable once in a person's lifetime in order to fight valueless speculation. Third, the financial sector's chronic practice that favors quantity over quality, and short-term gains over long-term prospects needs an institutional overhaul. Fourth, the public's impulsive spending culture calls for an urgent shift. Fortunately, since the financial crisis, the U.S. household savings rate steadily hovers around 4%. Fifth, a world-wide cooperation through global forums such as G20, OECD, and IMF to suppress prevalent beggar-thy-neighbor policies. The future of America's economic prosperity seems quite uncertain at this point. However, the U.S. remains undiminished in many less-affected areas such as services, education, R&D, and soft power. Therefore, it remains to be seen if America's economic prosperity will be a broken myth, or a living legend in the days to come.