Paper Topic:

stormier weather

a . What is Recession

Recession is decline in a country 's gross domestic product (GDP ) for two successive quarters . Recession is preceded by quarters of slow growth rates resulting in of slowing business growth leading to higher unemployment rates , falling stock market and housing market

At present the United States economy is not in recession as it is expanding even though at very slow pace of 0 .9 percent in quarter ending December 2007 . Federal Reserve has not officially declared recession infact the Fed view is that of moderate expansion for 2008

and in worst case scenario even if the economy goes into recession it will be a very short term recession and US economy has enough strength to bounce back

b . For the time being going on Fed analysis as they have more information on the planet than anybody else there is very little chance of economy going into recession in 2008 . Historically recession is often preceded with slowing rate of growth and backers of recession believe that it will be similar this time too . For starter my take is that there will be no recession this time around because economies around the world are growing at decent rate especially the emerging economies . Secondly the dollar is significantly weaker this time around which will lead to export oriented growth

Even if the economy enters into a recession that it will be a very short term one because growth in other parts of the world will able to drive the economy . United States is still the biggest destination of foreign direct investment it is still the largest consuming economy and still leader in new generation industries like bio-fuel

The whole fear in the economy is exacerbated by the falling housing market . The financial institutions have made loads of money in the past five years by lending money to the sub prime segment . Over the last five years they have shown billions of dollars of revenue in quarterly results but suddenly few quarters of losses are making everyone shiver The correction has to take place and it is good for the system as responsible lending will again be in fashion rather than charging excessive interest from low earning and credit rating customers

Secondly with oil at 100USD there will be glut of money with the sovereign funds from Middle East , Norway and Russia whose prime destination will be United States . This will result in investment and employment generation

c . A depression is a prolonged recession . The last major depression faced by the US economy was that in 1929 which lasted for more than a decade . The negative growth rate in the first four years of the great depression were - 1930 -8 .6 , 1931 -6 .4 , 1932 -13 and -1 .3 in 1933 Such a scenario is hard to take place now as central banks and governments have learned how to avoid depressions

Kuttner 's assessment of financial system holding more than the true value of assets can be correct but will...

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