The worries of an Us recession surged after a key barometer of the strength of the service sector dropped to its lowest level since 2001. With the services business being the last strong hold of economic growth and accounting for about three quarters of the economy, the slump seems inevitable. The Institute for Supply Management’s non-manufacturing index dropped to 41.9 from 54.4 in December 2007. It was the steepest fall since the index was launched and even the lowest level since the 9/11 terrorist attack. A value less than 50 indicates a contraction of service activity, suggesting that the recession could be worse than the relatively mild one experienced in 2001. Economist is now speculating how long and how deep the slump will be as it is going to be a broader and deeper slowdown than assumed.
It all started as foreclosures roe and housing prices slumped. The crisis soon spread to the banks and brokers that invested heavily in mortgage securities, More recently, the US consumers, who make up two-third of the economy slowed their spending sharply, thus making the economy look even bleaker. Beside, weak credit markets, looming, of course, the soaring crude oil prices are adding further pressure on the economy. To shore up the economy, the US central bank has aggressively cut interest rates, and the congress has passed a proposed $150 bn stimulus package. That package includes $600 tax rebate for most US taxpayers and some temporary tax cuts for business. US being the sole locomotive for global economic growth, the impact of US recession are often inflated.
The third world economies which were shaken by a series of financial crises in 1997 began accumulating hoards of overseas asset resulting in a ‘global saving glut’ . Ben Bernanke, chairman, of Federal reserve, says, “Directly or indirectly, capital flowing into America from global investors ended up financing a housing and credit bubble that has now burst, with painful consequences.” In other words, though America’s financial system had numerous banking regulations, the world’s surplus funds resulted in a global saving glut-funds all dressed up and nowhere to go. Paul Krugman, Professor, Woodrow Wilson School says,” The real sin, both of the Federal Reserve and the bush administration was the failure to exercise adult supervision over markets running wild.” Critics also believe that Fed’s policy of low interest rates has inflated the housing bubble.
It all started as foreclosures roe and housing prices slumped. The crisis soon spread to the banks and brokers that invested heavily in mortgage securities, More recently, the US consumers, who make up two-third of the economy slowed their spending sharply, thus making the economy look even bleaker. Beside, weak credit markets, looming, of course, the soaring crude oil prices are adding further pressure on the economy. To shore up the economy, the US central bank has aggressively cut interest rates, and the congress has passed a proposed $150 bn stimulus package. That package includes $600 tax rebate for most US taxpayers and some temporary tax cuts for business. US being the sole locomotive for global economic growth, the impact of US recession are often inflated.
The third world economies which were shaken by a series of financial crises in 1997 began accumulating hoards of overseas asset resulting in a ‘global saving glut’ . Ben Bernanke, chairman, of Federal reserve, says, “Directly or indirectly, capital flowing into America from global investors ended up financing a housing and credit bubble that has now burst, with painful consequences.” In other words, though America’s financial system had numerous banking regulations, the world’s surplus funds resulted in a global saving glut-funds all dressed up and nowhere to go. Paul Krugman, Professor, Woodrow Wilson School says,” The real sin, both of the Federal Reserve and the bush administration was the failure to exercise adult supervision over markets running wild.” Critics also believe that Fed’s policy of low interest rates has inflated the housing bubble.
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