Memories of faltering economies and worldwide recessions remain fresh among consumers, who are still struggling to find personal proof that recessions have ended. Largely thought to have been averted by 2010, the most recent economic recession lingers in the minds of analysts and consumers who aren’t so sure we are out of the woods.
In fact, some economists are pointing toward another recession in the near future. United States conditions are favorable for it, according to some economists, who see our lagging recovery effort as proof of pending peril. And international economic recovery is a mixed bag of success and failure, so the possibility of a slide toward recession is very real on a global stage.
Regardless of where you live or fall on the political spectrum, global economics influence your cost of living and your ability to make one. If you are like most, you’d really like to know: “Is the world heading for another economic recession?”
United States Conditions
One way or another, global economics reflect what is happening in the United States. Unemployment rates continue to linger around 7% in the U.S., and domestic growth consistently fails to reach levels indicating a strong economic comeback.
According to economists at the American Enterprise Institute, a few key economic sectors will bear heavily on the future outlook for the United States economy. Housing, for example, is a segment responsible for much of the upheaval experienced over the past decade, so it naturally weighs heavily on pending economic health. For the housing industry to operate on healthy ground in the U. S., risk must be minimized on mortgages supporting home purchases. Unfortunately, half the government-backed loans issued recently – through agencies like FHA, Freddie Mac and Fannie Mae, are based on down payments of five-percent or less.
At the same time, Fed policies keeping interest rates low are helping push housing prices higher. The artificial buoyancy created by low rates cannot go on forever, so home buyers with only 5% skin in the game could quickly find themselves underwater. Higher home prices make it harder for first-time buyers to jump in to the market too, further clouding the forecast for housing health.
Tax reform is also at the heart of sustained economic growth in the United States. The high corporate tax rate in the U.S. runs counter to the need for investment and development in the private sector. As a result, lower productivity and wages fail to stimulate the economy; leaving reformers frustrated with a United States tax code that discourages growth.
One of economics’ Nobel Prize winners, Eugene Fama, holds on to the prospect that global recession is a possibility for 2014. According to Fama, deficits in public balance sheets across the world open the door for economic recession in many regions.
Fama points to high-levels of indebtedness in Europe as cause for concern, as well as the abysmal job recovery in United States and other places. Current high stock prices, he argues, are a result of streamlining and profitability increases among companies following the belt-tightening in 2008-2009. Gains could be eradicated quickly if other sectors of the economy falter.
Emerging market economies also bear heavily on global outcomes. While China, Brazil and India have received positive attention for growth, other emerging markets like South Africa, Turkey and Argentina are seeing devalued currency and other signs of trouble. Moderate to high inflation rates in these countries stunt economic growth; causing investors to go elsewhere with capital. It is hard to say how these trends might manifest globally, but they are not positive signs of international economic health.
Whether it is led by continued lags in United States productivity, or set in motion by international currency issues, a worldwide recession is within the realm of short-term possibilities.
About the Author:
Viviana Woodbury is a freelance writer and blog junkie from best app developer. She loves receiving reader feedback, which can be directed to Viviana.Woodbury@gmail.com.