Consumer spending dropped by the largest amount in 28
years predicting recession has already begun.
Gross Domestic Product fell to 0.3 percent in the July
- September quarter, the Commerce Department reported Thursday.
Many analysts believe that GDP will decline in October
- December as consumers will be less likely to spend. The classic
definition of a recession is two consecutive quarters of negative
GDP.
The Labor Department reported Thursday that
applications for unemployment benefits remain at elevated level last
week. The number of laid-off workers filing new claims totaled
479,000, the same as the previous week.
Government is finally taking steps to bring billions
to banks with announcement this week. Fed also cut Fed Funds Rate to
1 percent. Fed officials are moving as quickly as possible to
distribute funds to banks, just before elections to show that the
are dealing with financial crises.
If Fed lowers its rates to zero, many analysts believe
that this may not be possible because if current credit crises
worsen, Fed may be out of options. Even lowered Fed Funds Rate
cannot serve as a way out of crises, as the goal for banks is to
start lending again. However, banks are cautions as they have
acquired a massive bad loans that cannot be serviced.
Treasury on the other hand showed report showing
checks had been disbursed for $125 billion in payments to nine major
banks, including Bank of America, Citigroup, JPMorgan Chase, Goldman
Sachs and Morgan Stanley. The goal is to bolster their balance
sheets so they will resume more normal lending.
Treasury is also working on $50 billion plan to help 3
million homeowner to avoid foreclosure, which may be the most
aggressive plan as of yet.
There are many negative items that are troublesome for
consumers from lower payroll employment, flat personal income,
lowered stocks and housing values.
The Fed's steps to help economy with many different
bailout packages might prevent recession, however; it will take
time.
For the fourth quarter economy is "contracting
significantly" as Janet Yellen, president of the San Francisco Fed
said.
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