What is a recession? This happens when there is a significant decline in the economy which usually lasts for a short period of time. You can tell there is one when consumers don’t spend that much, a lot of people are unemployed, companies have to make job cuts, industrial production is down and lately, there is a housing crisis as people have to foreclose their homes.
The technical indicator which tells you that the country is in a recession is when there has been 2 consecutive quarters of negative growth which is measured by the country’s GDP or gross domestic product.
Experts say that this is bound to happen because it is part of the business cycle and things usually improve within 16 to 18 months.
What is a business cycle? It is considered to be a periodic but irregular up and down movement in a country’s economic activity which can be measured by fluctuations in the GDP as well as other macroeconomic variables.
Things are going up when the economy recovers and expands. The situation goes the opposite direction when the market experiences a slowdown until it eventually reaches a recession.
The last time the United States had a recession was in 2000 and this lasted for three negative quarters until 2001. Experts hope that the same thing will happen right now but this could change as the stock market has had a roller coaster ride these past few weeks and a bailout which was just approved recently will try to make things better.
But there has never been such a drastic move when the country was in recession. In the past, lowering interest rates was the solution. In 2007, the Federal government slashed the interest rate three times towards the end of the third and fourth quarter so that banks could get overnight loans for as low as 4.25%.
The recession in the United States has affected other countries and drastic steps have been taken to prevent it from getting worse. Britain unveiled plans to inject up to 50 billion pounds which is equivalent to $90 billion into its biggest retail banks. Members of the European Union agree that there must be reforms in the world’s financial system.
Is there light at the end of the tunnel? The answer is yes but it is going to be some time before anyone will see any improvements. In fact, this crisis will continue on to whoever wins the Presidential election next month making it one of the key issues.
During the last three debates, both candidates were asked what they are going to do to fight the current recession. One of them insisted on tax cuts while the other believes that another approach has to be used.
Whoever wins, be it McCain or Obama that person better have a plan so people who are unemployed will be able to work and the current state of the economy will improve. It is something that the American public will be looking at during their term as president and when the dust settles, only then will people be able to say whether or not this person was the right one for the job or they should have voted for the other candidate so we can get out of this recession.