July 12, 2008
Evaluating the Potential for a Recession in 2008
Recent CRS Report (via Open CRS): "The U.S. economy has faced some bad news lately. The housing boom has come to an abrupt halt, and housing sales and house building have been falling at double digit rates. Problems in housing markets have spread to financial markets, causing a "liquidity crunch" in August 2007, and calm has not been restored since. Financial institutions have written off large losses because of falling asset values, particularly for mortgage-backed securities. Commodity prices have been rising, and the price of crude oil has recently topped $120 per barrel. While each of these factors might not be enough to cause a recession in isolation, their cumulative effect could be great enough to push the economy into recession." [RJ]
In light of this news, it is perhaps unsurprising that consumer confidence is at a five-year low. In response to these events, Congress has enacted an economic stimulus package (P.L. 110-185) and the Federal Reserve has aggressively cut interest rates and lent directly to the financial system to spur economic growth. Despite these actions, a recent survey of private sector forecasters put the chance of a recession in 2008 at 60%. A look at the available data suggests that economic growth has slowed considerably, but it is too soon to tell if the economy has entered a recession. Typically, the NBER does not announce that the economy has entered a recession until the recession is well under way, for good reason. Recessions are defined as prolonged and sustained declines in economic activity, so by definition, a persistent downturn cannot be identified until it has persisted. Any decline in economic activity at this point is only nascent. Growth was slow in the last two quarters for which data are available, but remained positive. During the onset of the liquidity crunch, economic growth was an unusually high 4.9% in the third quarter of 2007. Employment declined slightly in the first four months of 2008. The same forecasters who believe there is a one in two chance of recession also predict that growth will average 1.4% in 2008. Given the lags between policy changes and their effects on the economy, the economy has not yet felt the full impact of the stimulus package and the Federal Reserve's actions.
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It is not only a bad news for McCain or America , its also a bad news for the entire World, because the changes in the world market affects the whole world. Change in major stock exchanges, change in various products prices, change in climate, etc give rise to all such major problems.
Posted by: garrett106 | Aug 3, 2008 10:23:46 PM