When Federal Reserve Chairman Ben Bernanke announced the hefty cut in interest rate in August he had also indicated that the downside risk to growth had increased considerably. Since then, the trends have worsened making recession in US almost imminent. Alan Greenspan put a date on it. It is possible we can get a recession in the later months of 2007, he said, though most forecasters expect it in 2008. The reason why Greenspan feels recession may descend early is that profit margins of US companies have begun to stabilize. Besides, in August more than 4000 employees lost their jobs. Recession will be the cumulative effect of sub-prime mortgage crisis and housing burst.
The US economy has been expanding since 2001 and is now almost at the end of the cycle. An economy is in recession when economic growth becomes negative for at least two consecutive quarters. Since the US recession will be brought about by housing burst it is likely that the drag on the economy will continue for a much longer time. Japan took nearly a decade to normalize from a similar shock. Recession in the US is a concern for the rest of the world because the US is the largest economy generating more than 28 per cent of the world GDP and absorbing 16 per cent of world imports.
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