Thursday, April 10, 2008
America's Recession
It looks more likely that the U.S. will actually have a recession (that is, the economy may actually shrink in size). This analysis assigns blame to two things a) less lending and b) consumer spending slowing down (MPC falls). Looking just at the loanable funds market, does both of these make sense? (Hint: not really). So the lending slowdown must show up somewhere else - like the money demand function. This would be a great article to use for your final paper.
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The great American slowdown
This article deals with a very important economic topic at the moment: the recently proclaimed recession we are going into. The US has gone into recession once in 2001 and ten years earlier as well. Even though recessions are serious the US economy was able to get out of these recessions quickly and with not too much consequence. This recession seems a little scarier, as the article states that it will take more time, years probably, for the US to get out of this recession.
When in a recession a country’s growth rate slows down or decreases and consumer consumption goes down. At the moment four things are affecting the US economy and making this recession worse: the mortgage problem, the “credit crunch”, the ever increasing petroleum prices, increasing food costs and the increasing unemployment rates.
According to the article some economists believe that this recession might not affect developing countries as much as other recessions might have done in the past. It seems like interdependence of developing countries to the US is not as strong as before. Financial markets in the US have suffered the greatest blow to its prices in 80 years and this trend has been seen in countries in markets around the world.
The increase in unemployment rate has not been as dramatic as expected. There has been a loss of jobs of around 1%, but policy set by authorities seems to be controlling this.
Another reason why this recession might be happening is because it seems like the structure of the world economy is changing at the moment. The US currency, the dollar, has been loosing purchasing power dramatically and the exchange rate will continue falling while the recession is still in place. The Euro and the Pound have a greater presence in the world economy than the dollar at the moment.
Politics is also dangerous during this recession as there are upcoming elections and the future President will have a very hard task at hand. The US population as a whole seems not to be in agreement with the way the country is being run at the moment, possibly the new President might fix this, give the citizens more optimism which might in turn increase their consumption.
The recession seems not to be as grave as thought when the idea of a recession was first introduced to the population. Even though economists believe the recovery from this recession will be longer than what was actually expected it seems as though we will get out of it. The tactics implemented by the Fed have seemed to work at the moment, like the interest rate cuts done at the moment; probably with their leadership the recession will not affect consumerism as much as it is believed.
The article “ The Great American Slowdown” from the Economist.com is about how the worlds strongest economy may be slumping into a recession. The American economy slowed down before in 1990-91 and in 2001 but recovered quickly and American shoppers barely skipped a beat, but what we are facing now may be a entirely different story. There is more evidence that shows we may be heading towards a recession and it may last longer than many people may expect. The housing bust, the credit crunch, higher fuel and food costs and, most recently, a weakening labour market are all hurting American shoppers and slowing down consupmtion.
After the Great Depression, the Central bank has created cyclical depressions now called recessions due to their less severity. In these cycles it is a normal occurrence to experience the subjects mentioned in this article such as Credit crunches, Higher fuel/ and food cost, and weakening labor markets.
What is explained here is not as scary as the news makes it out to be. Creative destruction is when one area is failing another is emerging n the glooming shadow. Car sales are probably down because they are hyper-inflated or maybe they produced to many. When people have to purchase cars on a “Smart Buy”, you know there is something wrong with the pricing.
My biggest concern that this article discusses is the idea that the banks are refusing to move or cooperate with the Federal reserve bank, when this housing bust that he article speaks of would almost appear to be some sort of orchestration. Either way it goes a construction economy is loosing gas quickly. What do we do now? What new orchestration are we going to move to now?
The idea that I disagree with in this author’s argument is that the United States does not really matter as much anymore. If it did not matter then why would the rest o the world feel our ripples?
One thing is true the lower the interest rate the foreign investment will continue in our country, leading to an increase in jobs, production exports and savings.
I do believe that we will need to rely on more policy, but what ever we do NO PROTECTIONISM! All it does is raise prices and we jut find someone else to fill our mouths whether it be Mexico, Columbia….
The article America's Recession is perhaps one of the most talked about topics in macroeconomics. Generally a recession is a decline in a country's real gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. It projects a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. It useually begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.
America's recession may involve simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions may be associated with falling prices (deflation), or, sharply rising prices (inflation) in a process known as stagflation. A severe or long recession is referred to as an economic depression which is something Americans fear to repeat. Stock market drops have preceded the beginning of recessions. Strategies for moving an economy out of a recession vary depending on which economic school the policymakers follow. The official definition of recession is when GDP growth is negative for two consecutive quarters or more. However, you can feel like you are in a recession before it has officially started because it is usually preceded by several quarters of slowing but positive growth.
It feels like a recession when GDP growth slows, businesses stop expanding, employment falls, unemployment rises, and housing prices decline. For those reasons, many experts say the U.S. is actually in a recession now. About the only good thing about a recession is that it will cure inflation. The balancing act the Federal Reserve must pursue is to slow economic growth enough to prevent inflation without triggering a recession. Currently, it must do this without the help of fiscal policy, which is generally trying to stimulate the economy as much as possible through lowering taxes, spending on social programs and ignoring current account deficits. In a recession, economic growth falls dramatically. The stock market declines, and usually enters a bear market. This usually causes a "flight to safety", where investors buy Treasury Bonds which causes interest rates to fall. Employers reduce new hiring, and eventually start laying off workers.
Hopegully the economy will be revived,and the Federal Reserve will begin lowering interest rates to spur business lending and investment. Things may begin to look better for the U.S. seeing that the Federal Government are instituting tax breaks to spur consumer spending and The stimulas packages have already been set in motion.
“The Great American Slowdown”, from The Economist, is an explanation of what effects an American recession will actually have on the world economy. The Author claims that the global community should not worry about the recession itself so much as the sluggish period after the recession. The author presents several ways to deter such an episode.
He also expects a decline in spending amongst American shoppers during our current recession. He blames decreasing consumer spending on four aspects of recent economic difficulties including: the credit crunch, the housing implosion, rising fuel and food cost, as well as a weakening labor market. Recently, unemployment has risen to 5.1 percent and the private sector has seen continued losses since December. Up and coming world leaders in the global market, such as India and China, will not be affected so much by a decrease in American output, but more likely the length of the recession. The influence of the American economy is not as strong as it has been previously; “the dynamism and resilience of emerging markets mean that America does not mater as much as it once did.” A weakened Dollar will help increase American exports, due to foreign currency buying more goods in America. American policy makers will try to increase investment by decreasing taxes, but historically spending will be weakened for years rather than months, in other words a small recession will be followed by small growth. And small growth may be detrimental to the global economy.
I feel that this article is a great summation of what we have learned about basic principles in macroeconomics. Not only did the author write an article that is timely and relevant, it was well written for economic novices. The only question that remains for the author from me is: “do you think that the lack of spending from Americans is what will lead to a sluggish recovery?”
The fall of the U.S. economy is the focus of this article. The article talks about the rise of the unemployment rate, the "housing bust, the credit crunch, higher fuel and food costs and, most recently, a weakening labour market." The artle also touches on the last two recessions the United States has had and how this recession is not as harmful as the them. The article also points to the world economy. While the U.S. economy is in decline, the world economy is also in trouble and in an even bigger stage than that of the U.S.
This problem seems to be one that could pose difficulties solving. While the article says there is no cause for alarm, I think we need to accelerate the healing process ro there would be a cause for alarm. I think a shift from the right wing of congress to left was a good beginnig. Hopefully, this change will also take place in the white house; the the healing process can begin. The article talks about reversing tax cuts and regulating powerhouse moneymakers like the oil industry would be right steps to rectifying the problem.
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