Monday, December 17, 2007

U.S. economy is heading to a recession.

It has been suggested that the U.S. economy is now heading toward a great recession (See this article). Primary problem is subprime lending, which lead the U.S. economy into hosing bubble.

The subprime loan is the high risk lending for people without good credit histories. You can easily see the problem of this system: “Why are the most risky loan products sold to the least sophisticated borrowers?”

Similar hosing bubble actually happened in Japan in the end of 1980s. I was a high school student, therefore I did not actually experienced the bubble phase of Japanese economy. I just watched elder people getting enthusiastic and crazy. They bought unnecessary and expensive brand goods and spent money like water. They just got too much money because their hosing prices were raising too high. And one morning the prices suddenly dropped. They lost everything in one day.

After the blast of the bubble economy, Japan experienced the most severe recession. It took 15 years to fully recover from it.

I just hope that the U.S. economy does not contain such a huge problem. Although this report says U.S. economy is still strong now, I think the U.S. economy will experience the recession soon. I hope the recession will be short and minor.

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