Janet L. Yellen, chief of the San Francisco Federal Reserve Bank has admitted that the US economy appears to be in a recession.
Janet L. Yellen, chief of the San Francisco Federal Reserve Bank has admitted that the US economy appears to be in a recession. She stated the obvious: the US gross domestic product (GDP) was down 0.2 percent in the third quarter of 2008, with US economists forecasting a 0.8 percent fall in the fourth quarter.The word recession, despite its very wide usage in the backdrop of the ongoing market crisis, has not been clearly defined. What it means is that in times of recession a country’s GDP stops growing but does not drastically fall. In other words, “recession” is the same as “stagnation”, a word Russians know well. Recession does not necessarily develop into an acute drop in the economy, which would signal the beginning of a severe economic crisis. However, the danger of a recession lies in the fact that the economy can remain in a recession for a long period, unable to overcome it and resume its growth. According to US economists, the term recession can be used only in the case of a moderate economic decline lasting for at least two fiscal quarters - exactly what the US economy has gone through in the second half of 2008, they say. International Monetary Fund (IMF) experts forecast the US economy’s growth at 1.6 percent for 2008. However, they say, in 2009 the US GDP is expected to increase by only 0.1 percent, which means the national economy will remain in recession for most of the year. The US crisis does not bode well for the rest of the world, since the country’s consumer economy represents over half of the global economic output and is the centre of the world’s export flows. Other countries’ accusations over the United States losing its economic and financial leadership in the world are mostly caused by the fear that the recession will lead to a reduction in global economic growth, from this year’s 3.9 percent to 3 percent in 2009, according to IMF experts. These experts say that the economies of the leading European Union (EU) countries - such as Britain, Italy and Spain - will slip into recession as well. The IMF also forecasts plummeting rates of economic growth for Russia, from this year’s 7 percent down to 5.5 percent in 2009, as a result of the decrease in world oil prices, a forecast that is considered too optimistic by some members of the Russian Government. Experts warn that the global recession will also involve new industrial giants China and India. The sooner the US copes with the crisis, the better for the rest of the world. All countries are vitally interested in the soonest possible recovery of the US economy and finance. It is no wonder that even in the US, the beacon of economic liberalism, more and more people now support the policy of the government’s active involvement in the economy, as they fear that a long-term recession may lead to a loss of income and jobs. According to the surveys conducted by Bloomberg and the Los Angeles Times in October, most Americans spoke in favour of the Bush administration’s $700 billion financial rescue plan to buy devalued mortgage-related assets held by struggling financial companies and banks. Back in September, a similar poll revealed that the majority of Americans opposed the bailout plan. As a result of the US government’s measures to buy out financial companies’ stocks ($250 billion is allocated for the purpose), on Oct 13 the Dow Jones index went up by 11 percent, a jump not observed on the US stock market in the last 70 years. It is no wonder, then, that many US citizens favour the government’s actions. Still, a considerable number of the US residents does not agree on how the state finances are distributed, thinking that the government should first help its citizens by paying off mortgages for housing and apartments rather than helping the banks that left them in debt. Most of the respondents believe the anti-crisis plan is not enough for the US to cope with the recession and that some additional steps are still required from the government.