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Specter of Recession Looms in the U.S.

[Sep 19, 2007.]

 

The specter of recession is rising in the U.S., buoyed by the tidalwave of troubles in the stock market and housing sector.

A string of losses on Wall Street has renewed talk of recession. The Federal Reserve attempted to fight the recession threat last week by cutting its discount rate on loans to banks.

Meanwhile, the nationwide credit crunch appears to be worsening. Defaults on subprime mortgages are rising, while lenders are tightening requirements for would-be borrowers. Sagging home prices and a glut of properties are also making it difficult for home sellers to secure deals.

Add to this news that Countrywide Financial Corporation, the largest mortgage lender in the U.S., had to borrow $11.5 billion just to keep making home loans. Other, smaller mortgage lenders have actually gone out of business as a result of the crisis.

In response, the Federal Reserve has been pumping billions of dollars into the nation's banks to stop a rise in short-term interest rates. And it's been said that credit is harder to secure than ever because of the current economic situation.

Some economists now say that fear appears to be the emotion of the day for investors—a situation which could lead to an all-out recession. One economist said that the risk of recession has grown significantly in recent weeks. And the situation could worsen the longer that the stock market remains turbulent.

It's expected that the credit crisis will extend to other loans, such as credit card debt and car loans. It's important to note that consumer spending is responsible for much of the nation's gross domestic product. Therefore, if consumers have trouble borrowing money for cars, it could have a ripple effect throughout the entire economy.

Meanwhile, the jobless rate also rose in July to 4.6%. If economic growth stagnates, unemployment could surge and bring with it an economic meltdown.

Julie Ann Amos
September 19th 2007

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