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The war in Iraq and the political implosion of the Republican Party clubbed with the eminent economic collapse in the nation will be a turning point once again for the American political history. In the 1970s, when America faced an economic depression, it was contributed to the Vietnam War, deindustrialization and stagflation.
The general signs of economic depression are all round us. The unemployment rate is gradually climbing; manufacturing companies are reporting a slowdown in their business, people are losing their homes because they cannot keep up with their mortgage payments
The financial sector, primarily finance, insurance and real estate, has grown exponentially in last 25 years. However, the rest of economy in the country has not grown at the same rate. This sector has a lot of clout and capacity to do great harm. The best example of the harm that can be done by this powerful financial sector is the collapse that the mortgage industry is facing today. This is quite unlike the dot-come bubble burst where the effect was limited.
Signs of economic depression are not just about foreclosures. They are about the collapse in home prices, shutting down of large portions of construction industry, and the fact that financial institutions will refrain from lending money to anyone. Suddenly equity in homes that was used to fund everything from a college education to consumer durables has disappeared. Small and medium sized business are not getting credit to function and hire people. Basically, it will be a general collapse of the credit structure.
Oil prices have risen to unimaginable levels. This has led to increase in production costs right across the country and the increase further contributes to the US deficit, which in turn contributes to the lowering of dollar.
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