Page last updated at 19:08 GMT, Sunday, 26 October 2008

Vote USA 2008 issues: Economy

The state of the US economy is a major worry for many voters, with polls indicating it has become the decisive issue in this election.

When the election campaign began well over a year ago, the US economy was growing strongly and this was expected to benefit the Republicans.

But since then problems in the sub-prime mortgage market have spread to affect the financial sector, the housing market, and other parts of the economy.

And the crisis shows little sign of abating, with millions of families facing eviction after defaulting on mortgage payments, falling house prices putting more people in negative equity, and rising unemployment and increased fuel costs causing widespread financial pain.

It remains to be seen whether the $700bn (382bn) Wall Street bail-out plan passed by Congress with the aim of rescuing the US financial sector will prove effective.

The bill is aimed at taking bad mortgage debts off the books of the banks, thus freeing up credit markets; Congress also hopes to protect homeowners from losing their properties.

Democrats say tax cuts have benefited the rich - Republicans say they have driven economic growth

Some 87% of Americans cited the economy as "very important" to their vote in a Pew Research Center study published in August this year.

Since September 2007, the Bush administration has been desperately trying to minimise the impact of the sub-prime crisis.

Nonetheless, six months into 2008, more than 9% of US mortgage holders were behind with their mortgage payments or were in foreclosure procedures.

Mortgage giants Freddie Mac and Fannie Mae - which between them account for nearly half of the outstanding mortgages in the US - were taken over in September because of the "unacceptable risk" they posed to the economy.

The US central bank - the Federal Reserve - and the US Treasury have been seeking to restore confidence and stabilise the faltering US economy.

But many Democrats blame the Bush administration for not acting sooner or more decisively to contain the problem. They also accuse Wall Street of greedily stoking the crisis.


In order to tackle the financial crisis, Republican presidential candidate John McCain has proposed that the government buy up $300bn of bad mortgage loans and re-negotiate them at lower interest rates, helping more families keep their homes.

Democratic presidential candidate Barack Obama has criticised the proposal, saying it will cost the taxpayer billions of dollars and reward irresponsible lenders. He has urged the quick implementation of the congressional bail-out plan.

Polls suggest more voters trust Mr Obama than Mr McCain to handle the economy.

All this economic turmoil may bolster the Democrats' claims that ordinary people have not shared the fruits of economic growth, and that the rich have benefited disproportionately, thanks to President George W Bush's tax cuts.

The Republicans argue that encouraging and rewarding enterprise has driven US economic growth. Most - including Mr McCain - want to extend the Bush tax cuts, which will otherwise expire in 2010.

Mr Obama has said he would repeal Bush tax cuts for households earning more than $250,000 and help struggling low and middle income families with targeted tax relief.

Protectionist pressures

Few in either party want to address the difficult budget choices that may have to be faced in the next decade, including the need to reform social security and Medicare, as the baby boom generation enters old age.

The US also faces rising competition for resources, with growing economies such as China increasing pressure on supplies of oil and other raw materials, and over trade.

Many Democrats argue that the world trade system is unfair to US workers, and want workers' rights in countries like China better protected before they will agree any more trade deals.

Mr Obama publicly railed against free-trade pacts during the Democratic primary campaign, although he faced accusations that aides had been privately reassuring foreign governments that this was little more than campaign rhetoric.

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