An economic recession refers to the situation where there is a continuous or steady decline in the GDP of an economy or a negative economic growth. The characteristics of a recession include the decline GDP increased unemployment, fall in consumer’s confidence and profits, reduced investment rates, reduced demand for imports and increased government expenditure. (Kose A et al 2003). Serious risks involved in a recession include tightened credit conditions that cause slurred flow of money. There has been a great fear that the US is currently facing a recession.
These have had a negative impact on the people’s confidence in the economy. The consumer confidence according to RBC Cash Index has dropped to a mark of 48. 5 this month. (www. readingeagle. com). Investment has been negatively affected with the increased worries of a recession. Despite the Federal government incentive of reducing the interest rates to urge more people to invest, the decline in people’s confidence still hinders investment. Investment plays a very crucial role in influencing economic growth.
To accelerate economic growth and curb the effects of a recession, investment must be encouraged. The White house plans to give tax rebate to individuals and tax breaks all for the sake of
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Fewer people are buying houses as they cannot afford the inflated mortgages prices. The recent trends have been the worst in 25 years. The resultant effect of this is increased foreclosures increasing the glut on homes that have been unsold. The housing slump will force the Federal government to further lower the interest rates in trying to increase investment. This measure might worsen the recession. The global market has changed drastically and the US dollar importance as the world currency is now losing fame as other currencies like the Canadian dollar become favorable.
This further hinders the investment rates making it hard to attain economic expansion or growth. Fear of the recession discourages the foreign investors from venturing into the market. A weak and an unstable currency hinders investment both domestically and internationally. Another evidence quoted for the recession includes the tighter credits and wavy stock markets. The world seems to be losing confidence in the US leadership on various issues like human rights and global warming. This has a negative attitude on the overall investment process. Capital flight works further to discourage investment.
This is because they will lead to the establishment of increased interest rates, which in turn will lead to unemployment due to reduced investment. The vicious circle will continue till the dollar falls further. The US federal government has been accused of operating in a deficit budget where resources were wasted. This is in contrast with Canada whose dollar is stronger and it operates in budget surplus. The ‘housing issue’ and the ‘dollar aspect’ are the main drivers of the US current status quo. The extremely reduced interest rate cuts may also have an effect on the economy.