Sunday, February 17, 2008

US Recession?

Sources: Financial Times, Associated Press, CNN Money

Despite cheap credit and plentiful jobs in quarters past—the US economy may be heading towards a recession. Soaring gas prices, higher cost of consumer goods, and the ever deepening housing crunch has led to a rapid drop in consumer confidence in the US. Consumer import good prices rose 13.7%--the highest since 1982.

Former Federal Reserve Chairman Alan Greenspan predicts a 50% chance that the US economy will lead to recession in 2008. Mr. Greenspan also believes that economic difficulties will not lift until the housing crisis is resolved. He also believes that the US should already be in a recession, except for the fact that businesses are still well capitalized.

Many of the fears have been stoked by the drop in US consumer confidence. A Reuters index noted that confidence has slipped to the lowest levels since 1992. Other pundits believe that this year may be the “worst level in recessions” since the early 1990s. Nevertheless, most economists this downturn will be short-lived, and the current chair of the Federal Reserve is willing to “act as needed” to address the possible economic downtown.

QUESTION: In light of the no-end-in-sight housing crunch, what steps, if any, can the Federal Reserve take to forestall any recession? Furthermore, what effects may a US recession have on the world economy, and what steps can other world leaders take to forestall a global recession?

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