by Umer Javed

Created on: June 22, 2008

Will this current recession be more severe and grave than that of 2001?

The questions - Whether the U.S is in recession or not? Will the economy of the U.S collapse badly? Will the value of dollar further sink? - are on the tongue of most of the people. The United States is facing the horrendous economic problems. These economic problems are leading the U.S to dark and they seem much severe and worse than those of 2001.

"The recession in 2008 will be 'much nastier, deeper and more protracted' than the 2001 recession", according to Roubini.

The dire economic problems of the U.S, on which the whole world is eyeing, are: high energy prices, weakening of dollar, free fall of housing, high interest rates, slumping of stock market, stagnant wages, and unemployment.
These grave problems are playing a vital role in the contraction of the U.S economy, and are giving birth to an evil recession.

High crude oil prices could be due the shortage of oil supplies. The recent jumps in oil prices can be linked to four things- fears over supply shortages, political tensions, weakening of dollar, and strong demand of oil.
The United States - the world's largest oil consumer - has accused Iran's Revolutionary Guards of supporting terrorism by backing Shia militants in Iraq and imposed economic sanctions on Iran-the world's forth largest oil producer. The move could trigger a confrontation between the two countries rattling supply of oil which is always scarce.
The prices of per barrel of crude oil have soared to a record high level of more than $138, and it is expected that it will reach $150 mark till July4, 2008. Obviously, the demand of oil is high in the U.S, but the supply is low; hence leading the consumers to face high energy prices.

Housing, in the U.S, is in free fall and is taking the economy down with it. In 2006, the sales of then existing homes fell by 4.1%. That was a huge housing slump in the last four or five decades. Before that, between 1928 and 1933, the housing slump was recorded around 90%.
The most shocking projection was made by Yale University professor, Robert Schiller, who believes that home prices could decline as much as 50% in some of the "hotter markets".

Unemployment is growing, whereas; those who are employed are facing stagnant wages. The necessities and their prices high but the wages are still; hence resulting in the decline of consumer spending. The thing that is most important in the U.S economy is consumer spending. The GDP of the United States is 70% of consumer spending. If the consumer spending keeps on declining, then of course, it will restrict the economy to grow. To counteract this problem, wages must be increased greatly; otherwise; THE ECONOMY CAN'T GROW.

The U.S economy is contracting; credit is getting tighter, and the stock market is slumping. The fears of recession are compelling foreign investors to run out of the U.S markets. The foreign support for the dollar is vanishing. Dow, the stock exchange, has reached its lowest mark in 15 months - which is a record low.

Consequently, unemployment is high, consumer spending is low, the housing market is slipping into recession, the dollar is falling, and the stock market is lurching back and forth.
There hasn't been any proper growth in the U.S economy since the year 2000. Now let's wait for the presidential elections 2008, and see how the new government handles these economic issues.

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