How Long Will US Recession Last?

The US is entering recession because:

Falling house prices. Consumer wealth is shrinking as the main form of asset is declining sharply in value. This reduces consumer spending and confidence. House prices may continue to fall for another 12 months because there is still a surplus of unsold housing stocks and mortgage delinquencies are still occuring putting more unsold houses on the market.

Credit Crunch. The losses in the subprime mortgage sector have left large black holes in the balance sheets of many banks, leading to the nationalisation of Freddie Mac and Fannie Mae. The result is that it is difficult to get loans and borrow money. Demand for high ticket items like cars is falling. Unfortunately, many are still facing home repossession, including prime mortgages on adjustable rates. The decline in house values only compounds the problem for banks. It will become increasingly difficult for the government to bail out banks.

Global Downturn. The EU and Japan are also entering recession. Therefore, there will be less demand for US exports.

Other Factors That Make US economic Future Depressing

Dollar gaining strength In recent years, the devaluing dollar has boosted US exports and economic growth; this has helped stave off a recession. In recent months the dollar has increased in value, because other countries are going into recession and the dollar began to look oversold. This makes US exports less competitive. Therefore, in 2009, there will be lower growth in US manufacturing and exports.

Tax Cuts Over.

In 2008, the economy avoided recession because of very generous tax cuts. This helped maintain consumer spending. However, the government's borrowing has increased significantly, leaving little room for further tax cuts and expansionary fiscal policy.

Interest rates.

Interest rates are 2%; this is already very low. With inflation at 5% (negative real interest rates) there is little scope for cutting rates further.