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Where Are We with the US Recession - Essay Example

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In the paper “Where Are We with the US Recession” the author analyzes the article by Francis Generex and Hendrix Vachnon published in the Desjardins Economic. The article studies the trends in the American economy, effectively compares two systems…
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Where Are We with the US Recession
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 Where Are We with the US Recession The article by Francis Generex and Hendrix Vachnon published in the Desjardins Economic studies while focusing on the trends in American economy, effectively compares two systems which defined and reflected recession trends in the United States economy. Though the conclusions derived through relating different methodologies for recession assessment indicated a weaker quantum of recession, the authors finally raise concern over the latest disturbing developments in the nation’s economy. The article from its beginning itself raises the question over the actual period at which the latest recession process began in U.S. The whole of the viewpoints as presented in the article are based on the indications of two different definitions of recession. The first definition is based on the indication of contraction of real Gross Domestic Product (GDP) in two consecutive quarters. The second definition of recession is in accordance with the system developed by National Bureau Economic Research (NBER) which is based on the contraction of employment, industrial production, real sales and real income in the economic cycles whose dates are as declared by the Bureau. As analyzed by the authors, as per first system, the recession in United States had not begun till that date. The Gross Domestic product graph showed an upward trend in the first quarter of 2008, which accounted to 0.6 percent. This trend was in continuation with similar growth trends indicated in the last quarter of 2007. Though the article envisaged a downward trend by the end of the second quarter, this may be reversed in the third quarter as the consumption of the tax rebate cheques issued by the Bush government would take effect by this period. In the second methodology the National Bureau Economic Research uses monthly indicators from the national accounts against the variables of employment, industrial production, real sales and real income to determine the actual dates of economic cycles and this system thus becomes more inclusive of minute details than in the case of the first methodology which only considers GDP trends whose frequency is quarterly. This allows the freedom to declare recession without concurrent occurrence of GDP contraction, as happened in 1960 and 2001.The authors of the article also describes the non- predictive nature of this methodology as NBER declares a recession only after six months of actual start of recession. This was because the data gets revised in accordance with the monthly indicators. As per this methodology recession in the American economy had been indicated to be begun in early 2008. This should be read together with the fact that GDP growth remained positive in the first months of the year 2008. The authors use graphical representation of the performance of four variables to correlate the possibility of the recession. However the amplitude of this recession has been estimated as much feeble as compared to the recessions which happened in the past. Further the article describes the expected aftermaths of the recession. The authors again use the trends in employment, industrial production, real sales and real income as analyzed by NBER to describe this. The article calculates a job loss counting up to 1,500,00 over the 260,000 layoffs which were already made, in case of a normal recession. The average job loss in case of the recessions in 1970 and 2001 was 1.9 percent which counted up to 1,755,000 jobs. However the job losses during the 2001 recession which was on a major count was not merely due to the national economic reasons but mainly fuelled due to the reasons that businesses adjusted to new technology, growth of productivity, global structure changes in the manufacturing sector and a wave of delocalization for an ever increasing slab of production towards emerging countries including China and India. (Generex & Vachnon,2008). The average drop on the industrial production during the previous recession periods was 7.7 percent. As on the date of the article, the industrial production saw a drop of 0.4 percent which was expected to get larger. However the drop in the real sales had only been half of the average drop recorded in the last two recessions which accounted to 6.9 percent. Further, with reference to the trends in the variables, the authors demands a correction in the NBER’s calculation on the starting period of recession from January to be reallocated as February because all the four variables showed a downward trend for the first time in February 2008. The authors review the impact of the recession as felt on the past first few months as much weaker than past recessions. This conclusion is reached by the comparison of the job loss trend in January 2008 with that of the job loss trend in the first few months in the case of past recessions. Similarly the ISM manufacturing index also reflected the recent recession as a weaker one. The stock exchange response also showed a similar weaker trend. As per the article, the only factor which was affected reasonably in comparison with the past recessions was the housing industry. The article concludes with the chances of reversal of the recession to a considerable extend due to the tax rebate cheques issued by the government. The author while stating that a real upswing in the scenario won’t happen until 2009, he leaves the message to the reader that a change in scenario may be expected by 2009. However the article also raises concerns over the disturbing trends which had cast doubts over the authors’ predictions of a weaker recession. Though the article had predicted a weaker recession, the economic scenario observed even after reaching the last quarter of the year is proving the reality to be quite different. The International Monetary Fund has described the America’s mortgage crisis as the largest financial shock since the Great Depression.The United States of America now has four separate bailouts underway, $800 billion for banks, $200 billion for Fannie Mae and Freddie Mac, $85 billion for the insurer AIG, and $25 billion for the U.S. auto industry. These figures add to more than $2.1 trillion (Roberts, 2008). It is interesting to note that though the recession had already started, the real GDP continued to grow in the first quartet of 2008. This scenario is well justified when reading together with H. Minski’s argument that the growth envisaged in the economy due the prevailing favorable conditions would only a temporary scenario (Pattanayak,2008). The prediction by the authors that the scenario may take a reverse mode in 2009, also is contradicted by the alarming long term aftermaths as the International Monitory Fund has warned that there is now a one-in-four chance of a full-blown global recession over the next 12 months (Steward,2008).The long term effect of the recession is further reinstated and the positive effect of the government’s tax rebate policy as expected by the authors is contradicted when Joseph E. Stiglitz criticized that the repercussions of damage done to the American economy by the present government will be felt beyond the ages (Stiglitz, 2008).Irrespective of the date of the start of recession, the authors’ conclusion that the recession would of a weaker mode has been proved irrelevant by the huge impact of the economic crunch. WORKS CITED Generex F & Vachnon H, “Where Are We With The Us Recession”, Economic View Point 14 Mar 2008:457-464 Pattanayak P, ‘The Crisis’, Malayalam,12.21,(2008):10-21 Roberts Paul, “Does the bailout pass the smell test”, Economy in crisis, 2008, America’s economic report, 16 Oct 2008, < http://www.economyincrisis.org/> Sreward Heather, “IMF says US crisis is 'largest financial shock since Great Depression”, The Guardian, 2008, The Guardian, 16 Oct 2008, Stiglitz Joseph, “The Economic Consequences of Mr. Bush”, Vanity fair, 2007, Vanity fair, 16 Oct 2008, Read More
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