Recession in American economy Essay

The economic sum of the term recess is, A period of economic diminution in a Country, characterized by reduced trade and industrial activity, production decline and increased levels of unemployment. It normally lasts between one and two quarters consecutively, (Tremblay 2007). In the US, incidences of fadeout have occurred since 1854. This paper, seeks address the reasons for recession in the US, with role to the principles of consumer behavior and the firm as a whole. Observers were non expecting an incidence of recession this time round.Most observers have been persuaded to expect moderate economic festering pass judgment in the US, of about 2 to 3 percent and a moderate inflation of around 2 percent (George. S, 2008). This is due to the concomitant that the US providence has proved to be the approximately resilient in the world. They however (the observers), have good reasons to back their predictions 1. They have placed their hopes on relatively stimulative monetary p olicy to keep consumption and expend outgo up and expect the finish up of the lodgment decline to be over. 2. With stock prices making new gameys, nigh point out that presidential andstock market cycles are favorable to higher stock prices since investing during 27 months before a US presidential election has proved in the past to be to a prominenter extent Profitable than investing during 21 months after elections. In the October 16th issue of Headwinds, 2007 for the US thriftiness, it is explained that macro-economic conditions make it a matter of months before the US economy and the dollar begun to experience virtually downward bosom (recession). This is probably the time for this recession. The US is the country with the highest swinish domestic product (GDP) in the world, with a GDP of $13 trillion . This has however reduced in the recentpast. Employment levels have to a fault declined. Production levels have gone down owing to cut-throat competition from emerge wo rld producers like China and different Asian Countries. An attempt by the households to save more from a given income led to the decrease in actual amount they succeeded to save-paradox of thrift, (Lachman, 2008). Different reasons can however be stage forward to explain the causes of this recession 1) The extrovertive administrations soon term reaction that they gave the economy before the 2004 and 2006 elections through a conclave of heavy(p) tax cuts and large increase in military spending.This cease up existence a waste as billions of dollars were spent on a futile war (Trembley, 2007) 2) Record budgetary and menstruum compute deficits have toughly neutralized the federal monetary policy attitude, because participation rates can non be reduced substantially for fear of a cotton on of the US dollar from the federal budgetary deficits as they are being reigned on. (Lachman, 2008) 3) With all this taking place at the same time that the edifice exertion is in disarray and housing prices have tapered make or are declining. Be that as it may, it is important to note that main office possession is more widespread than stock ownership s scintillationlymore than two thirds of Americans own their homes, while less than half own equities. The prey of the households is to maximize utility. By spending more on home ownership than on stocks, utility is attained quickly and it is within the consumers budget dummy (Ingdahl, 2008). 4) This rules the question of how long the American consumer will keep up the high pace of spending in such a context. During the years of the housing boom, consumer spending was driven by the accumulation of wealthinessiness and record consumer indebtedness, most of it in the form of mortgages as the price of houses increased.Now that the reverse is occurring and banks and other loaners are reclaiming property for unpaid debts, a retrenchment in consumer spending cannot be ruled out (Trembley, 2007). 5) Protectionist push f rom the Democrat controlled congress, risks putting in jeopardy the flow of capital of about $2 billion a day that the US economy is borrowing from abroad (mainly from China and Japan). clientele frictions between the US and China could force banks to raise engage rates and not lower them. In any case, the banks would not lower the interest rates as expected to make up for the housing crisis (Trembley, 2007).6) intermit of one and possibly several major financial institutions under the pressure of bad loans and record foreclosures (take possession of somebodys property ordinarily because they have not paid back an agreed part of the loan). curiously at risk is the sum $2. 5 trillion mountain debt strong in sub primes and loans. One major sub prime lender, (New snow Financial) filed for bankruptcy protection. Others are likely to follow suite because 2007 was the year when a large number of sub prime real estate locus had to be renegotiated at higher interest rates. Foreclosu res rate is bound to lease upwards.This will culminate in the next few years into a financial hurricane (Trembley, 2007). 7) The seventh and final reason is a geopolitical factor. The outgoing US administration has created some tension between the US and some countries in the Middle East. The Middle East, is the worlds largest oil colour producing region. In the coming years, the world economy will have to adjust to a peak in oil production and higher prices after the current lull. Geoplitical mistakes made by the outgoing administration have turned the richest oil producing region into a hot war zone making the US economic situation disastrous (Lachman,2008).The above listed reasons shed some light on why the US economy could be undergoing some grade of recession. They however do not provide a conclusive history or reasons as to why the American economy could be in recession. Unlike other forecasts, one can only tell when recession started and ended after it has ended. The dete rmination of recession is left to the National vanity of Research (Campbell. R. M & Stanley. L. B, 2005). However, it is possible to tell whether or not the economy is in recession by looking at past cases of recession. The great mental picture was the worst economic slump ever in the U.S history. It began in 1929 and lasted for close to a decade. Just like a recession, numerous factors led to the great depression however, the main cause for the great depression was a combination of the greatly unequal distribution of wealth throughout the 1920s and the extensive stock market speculation that took place during the last mentioned part of the same decade. Money was distributed disparately between the rich and the middle-class, between industry and agriculture within the United States, and between the U. S and Europe. This imbalance of wealth created an unstable economy.The excessive speculation in the late 1920s unbroken the stock market artificially high, but eventually lead to large market crashes, (Gusmorino, 1996). Almost eighty years later, the U. S might be facing the same situation though not as severe as it was then. Wealth disparities are all over the world today. Although the worst cases are not experienced in America, cases of unequal distribution of wealth are still in America. As mentioned earlier, the American household does not invest much on stocks but in acquisition of homes. Speculations in the stock market are relatively high though not as high as it was then.It is not easy to conclude that the American economy is in recession. Whether or not there is a recession, depends on both on actual economic activity and economic epitome in the future. The facts as they are right now, show that the American economy is in recession. REFERENCES. Campbell, R. M. & Stanley, L. B. (2005). Economics Principles, Problems, and Policies. New York McGraw-Hill Professional. Gusmorino, P. A. (1996). Main causes of the Great Depression. Washington planet Pres s George, S. (2008). The New Paradigm for Financial Markets The Credit Crisis of2008 and What It Means. Chicago world Affairs. Furchgott, D. (2007). The Great Recession of 2008. 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