Saturday, March 8, 2008

The "R" Word

When the world’s second wealthiest businessman says America is in deep economic trouble, it must be true. While it remains no secret that the United States’ economy has not been doing too hot as of late, billionaire Warren Buffet’s recent declaration that the U.S. economy is in a recession even if it has not yet met the technical definition of one confirmed the looming reality of America’s worst fear in one swift blow.

Of course, it didn’t take the actual occurrence of the economist drafted definition of a recession as two consecutive quarters of negative growth in the nation's gross domestic product for most Americans to recognize that the economy is on a one stop train ride to Recessionville as constant reminders of the economy’s growing fragility are everywhere. To many, the rise in mortgage defaults by "subprime" customers who were issued loans despite patchy credit histories during the last housing boom is sufficient evidence in itself, while to others the ever-increasing cost of gasoline, college, and health care raises warning flags, and to some the seemingly trivial rise in the price of a single tomato to $1.79 is enough to launch into a panicked frenzy.

Whatever the reasoning may be behind one’s belief that the R word’s presence in the United States is anything but a fantasy, it is clear that the issuance of Buffet’s statement not only served as a confirmation of sorts, but finally allowed the alarm bells that have been haphazardly muffled by President George W. Bush to ring loud and clear across the nation. Although Bush has repeatedly attempted to reassure Americans that the U.S. economy is not headed into a recession and is merely experiencing a slowdown in growth, the data has suggested otherwise. As bank after bank suffers with bad mortgages, multitudes of companies have continued to sharply chop profit forecasts in recognition that American consumers are too neck deep in debt to purchase the next new vehicle or plasma television. As this occurs, the value of the dollar continues to crash and burn, thus prompting businesses to cut investments and consumers to further seal up their already relatively tight pockets.

As American consumers become increasingly frugal, the global marketplace will inevitably begin to suffer. It has long been held that when the United States sneezes, the rest of the world catches a cold, however with this particular outbreak of the R word, the world is positioned to catch more than just a few sniffles. Perhaps the best diagnosis of the United States’ economic troubles and the impact it will have on the global economy was best issued by renowned economist and New York University professor Nouriel Roubini. Roubini stated that at this critical time “the US will not experience just a case of a mild common cold; it will rather suffer of a painful and protracted episode of pneumonia” thus resulting in a serious “real and financial contagion to the rest of the world.” While it is true that the United States only produces 5% of the world’s population, it still controls over a quarter (26%) of the global economy. Although some analysts have suggested the decreasing of dependence on American consumers in order to prevent the effects of the impending recession from spreading, to do so would not provide the miracle remedy international markets have been hoping for. Because the United States is not only a key direct trading partner, but crucial indirect trading partner as well, countries that have little or no contact with US markets would still feel the stinging pinch of the downturn of the American economy as they heavily depend on countries that are directly dependent.

Now, Unless some miracle vaccination that will immunize the nations that control the remaining 74% of the global economy from the United States’ economic troubles has been invented without my knowledge, I would suggest that they, too, take off their headphones, stop denying the existence of the alarms, and cooperatively strategize to overcome this tremendous problem before they, too, fall fatally ill because the chances are if it looks like a recession and sounds like a recession, it must be a...

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