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Is The Economy Headed Towards Recession?


A recession is ultimately a short-term sharp decline in economic growth. This should not be confused with a depression that is a severe long recession. Recession could occur because of an inflation or deflation in prices.

There is much speculation that the United States is headed towards this recession and we will discuss, in short, some of the reasons we may be headed there today.

Many analysis believe the housing market hasn't hit bottom yet, and won't until after the holiday season. What exactly is the problem with the housing market? When interest rates were very low, banks made it very easy for people to take out sub-prime mortgage loans. We will cover all aspects of sub-prime loans in a later blog, but the main point with these loans is that the interest rates are adjustable. Since interest rates began to rise, many could not afford and can not afford the new larger mortgage payments. Many are being forced to sell their homes and, since more people are doing the same, they must price these houses lower than what they originally paid. A worse condition for some of these people were the ones who had to claim foreclosures, which is likely to increase in the coming months. The housing crisis will be major cause of a recession if this is where we're headed.

Another reason we could be headed for a recession is the cost of energy. The price per barrel of oil keeps going up, and it is costing people more money than ever before to run their cars and heat their homes.

A sure sign of American's wallets being tightened is the restaurants and retail stores sales declining. People are less likely to spend their extra cash on a coffee at Starbucks now they have to pay more for their energy and their mortgage rates are going up. Time can only tell if a recession is around the corner. Lets all hope for a strong growth in 2008.
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