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According to the glossary of the Fed, a recession is “a significant decline in general economic activity extending over a period of time. Usually declared after two consecutive quarters of declining gross domestic products." Applying this definintion to the US economy, it still has not entered a recession, since the last quarter had a positive GDP growth (official release here) of less than one percent. However, a group of academics at the National Bureau of Economic Research define a recession as “a significant decline in economic activity spread across the economy” that lasts just “more than a few months.” The Economist indicates four factors that prove the American economy might have slipped into a recession: decline in the housing market, the credit crunch, higher fuel and food costs, and a weakening labor market with unemployment as high as 5.1 percent in March.
BBC News reported in November that the US sub-prime mortgage crisis has lead to depreciation of property, a slowdown in the US economy, and billions in losses by banks. The mortgage crisis refers to the U.S. homeowners being unable to pay the numerous mortgages they had. As a result, lenders decided to lend less or at higher interest rates that led to decreased businesses and consumer spending.
The primary reason for US recession is China, said Economics Professor Nadeem Naqvi. “The United States government wanted to engage China, which was a closed economy” and gave it a permanent status of the most favored nation which meant that all tariffs, quotas, and restrictions were removed. Americans were allowed to invest in China and “huge amounts of American capital flowed to China,” because the production was much cheaper there. Later on, “Chinese imports led to shutting down manufacturing activities in America; this is the root cause of the recession,” Naqvi explained.
“All Americans as a group spent more than they produce for the last few years and have been borrowing as a nation from the rest of the world,” said Dean of Faculty and Economics Professor Steve Sullivan. Current situation is “a message for the American public…[to] work a little harder, a little longer, and consume a little bit less.”
On April 17, 2008 one euro was selling for $1.598, its highest level since the currency began trading in January 1999, according to CNN.
The recent decline of the dollar does not necessarily mean the US currency has become “weak,” the Financial Times reported. Over the past 20 years, the inflation-adjusted value of the dollar against a broad basket of currencies has declined only 7 percent (less than 0.5 percent per year) which does not provide enough ground to talk about a fundamental weakness of the dollar, according to the publication. What does the depreciating dollar mean for Bulgaria?
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