Recession Essay

585 WordsJul 12, 20123 Pages
The National Bureau of Economic Research (NBER) has officially declared that the national recession started in April 2001, ending a 10-year expansion of the U.S. economy. The economy experienced a significant decline in the second quarter of 2001, and the tragic September 11th terrorist attack, the first one ever on the American homeland, delayed the recovery. However, Gross Domestic Product, after dropping 1.6 percent and 0.3 percent at an annualized rate in the second and third quarters of 2001, respectively, stabilizThe September 11th attack caused a significant loss of life and physical damage; but the The September 11th attack caused a significant loss of life and physical damage; but the U.S. economy, because of its size and diversity, proved resilient. The 2001 recession is a production-side recession, led by unsustainable business capital investment and equity market bubbles. Consumer spending and the housing market remain relatively healthy so far. This suggests that the coming recovery will be a slow and weak one. Many factors that traditionally lead a recovery, such as a rebound in housing, growing sales of consumer durable goods, and lower interest rates were not significantly affected by this recession and thus cannot provide much stimulus needed for a vigorous rebound. The federal government is also unlikely to provide much stimulusthe economy. The discount and federal funds rates are already at historical lows since the Federal Reserve System repeatedly lowered those rates in the months and years before the recession in an attempt to create a “soft landing” for the economy and avert a recession. It seems unlikely that the Fed will undertake further interest rate cuts given that the discount rate is already at 1.25 percent. There is little likelihood that additional fiscal stimulus is forthcoming from the federal government either.

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