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What is an Economic RecessionWhat is an economic recession?
This occurs when there is a significant decline in the economy which
usually lasts for months. This is visible in terms of consumer
spending, employment, industrial production, real income and
wholesale trade. A technical indicator of this is 2 consecutive
quarters of negative growth which is measured by the country’s GDP
or gross domestic product. |
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Economic Recession: A
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| The last economic recession occurred in 2000 and 2001 which featured
three quarters of negative growth followed by three positive
quarters then five more quarters of sub par growth. Experts say that
the same trend will happen right now. One solution that the government usually does is lower interest rates to help stimulate the economy. Just last year, the Federal government slashed interest rates three times towards the end of the third and fourth quarter year so that overnight loans between banks could be borrowed at 4.25% which happens to be its lowest in the past 2 years. What makes the economic recession different from what occurred after the Second World War is that this one is caused by falling home values and a crisis of confidence among fixed income investors. Despite the fact that the country has endured this time and again for over 50 years, there is still no way to predict when it will happen. Some use the stock market as an indicator. Others use the inverted yield curve which uses yields on a 10 year and three month Treasury securities and the Fed’s overnight fund’s rate. The unemployment rate is also another which happens to be one of the things that make up the index of leading indicators. There are people in the Bush administration who do want to call it an economic recession because this will make people panic but there are others who are brave enough to admit that it is here. Since it is going to be some time before the economy recovers again, everyone is advised to stay calm, save up and look for long term investments worth going into. Apart from the war in Iraq, the economy is going to be one of the critical issues that both candidates have to address as they are campaigning for the highest post in the land. Whoever wins, they have to find a way to reduce the unemployment rate, help people save their homes and a lot of other things that affect the average American household. An economic recession lasts months at a time. If it should continue for a much longer period, then this is called a depression which is something that the world and not only the US experienced at the end of the First World War. This lasted for up to 4 years that many hope will never happen again. |
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