Third quarter results have been posted and the economy and he GDP have been declining for three consecutive months since July to September. Technically a recession is defined as 6 consecutive months of negative growth and declining GDP. Amazingly with the current financial crisis and dismal economic environment. Some have already considered the United States to be in a recession according to declining GDP and unemployment figures, but it has not been technically declared so far. Last month GDP fell by 0.3%, which is the sharpest decline in 7 years. Consumer spending has also dropped along with business investment.
Americans unemployment aid rose to 3.7 million, the highest in almost 5 years. European consumer confidence has also declined, driving U.S unemployment even higher. The federal reserve also lowered its interest rates by 0.5% to promote business lending of credit. Even after the government gave business 700 billion dollars, they are not doing anything but holding onto the money. Keeping the interest rates low will not help his situation, banks will barely make a profit off of such low interest rates and have more incentive to hold onto the money. This is exactly the opposite of what the government intended for the bailout plan, the months ahead will be dismal for the U.S economy. Other countries around the world are experiencing the effects of the declining U.S economy, the question is now how do we turn things around. The bailout plan seems to have had little effect so far, so what is next? how are we going to increase consumer confidence and get the U.S economy back on track?
3 comments:
There is a strong case to say that the U.S. is in a recession just by looking at the past few months and making predictions of what is to come in the following few months. This is not going as planned with the bailout plan and the lowering of interest rates. I really would like to see what the Fed has in store if after a couple more months the economy hasn't made an obvious turn for the better.
I think the U.S economy will be officially in a recession soon if none of the Fed's policies work out. It is not technically declared so far since announcing it early will only put the market in chaos which will let the situation get worse.
well, at least at this point, it's quite obvious that the lowering of interest rates and a few efforts to keep consumer spending high (e.g. controlling gas prices) do not have much immediate effects. For the bailout plan, we'll see the result in a little longer (whether AIG can make the payments, and whether big institutions do reduce risks). I just learned from the trend of interest rates lately that interest rates are expected to be even lower, and will reach about 0.5% by Mar 2009. With this expectation, the expansionary monetary policy appears to be quite counterproductive at this point.
Anyway, the degree of economic downturns is mostly biased. Consumers panic, leading to the thoughts/rumors of a recession long before one exists.
Post a Comment