The paper "Recession, House Prices, and Trade Surplus" is a wonderful example of an assignment on macro and microeconomics. United States: PIMCO: Treasuries reflect the likelihood of a recession Summary Presently, the decline in United States treasury yields to a 60 year low which is characterized by failing monetary and fiscal policies. The decline in treasury yields is a sure sign of an impending recession. On 18th August 2011, the yield on the benchmark 10yr US Treasury note plunged below the 2 percent mark to settle at 1.98% to dismally rise on 19th to approximately 2.08% (Reuters News 2011). Issues With the rising pressure to pay up debts and running out of monetary and fiscal policy options, the United States, the world biggest economy is on the verge of an economic and financial meltdown which will not only translates to economic stagnation but increase the prices on consumer goods and influence the value of the dollar, which is an international currency.
The decline in treasury yields is an illustration of an incoming economic and financial depression and the outcomes of lowering inflation as a means revive an economy.
According to Bloomberg News, (2011), the move by the Standard & Poor to cut the US government credit rating to AA+ did not help matters much as it resulted in investors pulling out their stocks seeking liquidity and prefer conventional safe-haven assets as echoed by Wall Street Journal, (2011). The decline has generated a significant exit from the risk markets which demonstrate the panic investors have on the possibility of a recession and the increased loss of trust in any policies. According to the Telegraph, the impending recession is a result of the failure of policymakers in the US and in Europe decisively containing the sovereign crisis (Telegraph 2011). Implications The US needs to make quick decisive measures to not only protect its own population but also, develop effective fiscal policies to safeguard against potential recession and boost investor confidence.
The worrying trend in the US coupled with the turmoil in Europe raises concerns about the future course of global growth weighing down on stocks and assets, which are easily impacted by changes in growth. The panic generated by falling Treasury yields has the potential to make consumers refuse to buy or investors to invest, and increased risks in a rise in the level of unemployment, massive corporate losses, and stagnant global growth.
Market to market hit in China and other Asian countries is expected since countries such as China holds 26% of overall US treasury holdings as indicated by (Wall Street Journal 2011). China: China house prices raise fears of more tighteningThe Telegraph, Published 18th AUG 2011SummaryHouse prices have been on the rise in China in spite of the rigorous attempts and interventions by the Chinese government to cool the market.
The rise in house prices in China put the country, which is the second-largest economy at risk of a bursting property bubble.