Depression or Recession ?
A pall of gloom seemed to have hit the US economy, with the US commerce department revising downwards, Q3 GDP growth estimates at an annualized rate to 2.2%, from the earlier 3.5%, which had been revised downwards to 2.8%. If expert opinion is to be believed, we get a conflicting view of the situation on the US economy. Since US economy has extensive involvement with many major world economies, any recession here may in turn lead to global recession. That is why any slowing down of US economy immediately attracts worldwide attention. Slowing growth in the US economy has been causing worries amongst many experts and institutions. The government has commented that this rate of growth was normal had the US economy been not facing a recession.
But when Federal Reserve Chairman Ben Bernanke insists that the U.S. is not headed for recession, my ears start to perk. When I hear that Bernanke forecasts slower growth in 2011, I am relieved. Slower growth is far different from a recession. Slower growth is still growth. The U.S. economy will come through a downturn or recession and then enter a new period of growth. But the hard truth is most recessions last about 16 to 18 months. If a country experiences a period of time where it is in recession and the unemployment rate continues to rise and interest rates rise as well, the country has slipped into a depression. During most downturns businesses slow down and because of this the unemployment rate rises; though it doesn’t always do so.
Unemployment in the nation may be because of the common reasons such as growth of population and competition. With increase in population, there is an increased need for individuals for employment. With a huge recession period in the recent years, the US faced a huge unemployment rate. Many people lost their jobs due to high inflation rates during 2011. Warren Buffet believes that the strength of the US economy lies in its cowboy spirit of doing what the others have not dared to. Indirectly, it’s the ability of the US economy to innovate, which keeps it ahead. Innovations lead to either lowering of costs or creation of new goods and services, which can command a better value.
Hopefully, Buffet’s contrarian view should prevail and the US economy should see better times ahead. Economist hope now the GDP will continue to grow because the unemployment rate is holding steadily at the high end of its historic range and the possibility of inflation looms large. This is so because the Fed is trying to pay down the national debt by rapidly printing dollars.