The United States of America is the only superpower in the world and the largest economy in the world hence, whatever affects the USA becomes a global phenomenon. The military activities that the USA has engaged in, in the recent past have led to overconsumption. High expenditure in the Iraq war, for example, was overconsumption which is a major cause of the economic recession. This is according to (Behind the Hitch: Causes of economic recession, Uktim 31). This war led to an increase in the price of crude oil per barrel.
There was a bursting of the housing market bubble in the USA in the year 2007 which led to a mortgage crisis that was not resolved. In addition, there was the weakening of the dollar that dragged the global economy down leading to recession. This is according to (UN Information Service, 2008). This problem in the USA led to a credit crisis in other countries in Europe like Lithuania, Estonia, and Latvia hence the global economic recession.
Economic recession can be caused by both internal and external economic shocks. The USA war on Iraq was an external shock to the economy of many countries. This is so because Iraq is an oil-producing country. (YaleGlobal, 2008). By engaging Iraq in war the USA caused the global price for crude oil to rise as result there has been a recession.
Economic recession in the USA has a knockdown effect on economies like China which depend on export trade. It is important to note that trade is playing an important role in global economic growth. With a recession in the USA export growth in Japan, Europe and China are affected negatively thus reducing the demand for exports from developing countries. This is according to ( United Nations Information Service, 2008).
With the dollar weakening even further the USA has been forced to minimize the demand for goods from other parts of the world. By so doing exports from developing especially African countries are reduced. The US is doing this so as to meet the standards of living of its citizens. Although this is for the benefit of the US citizens, economies of developing countries exporting goods to the US are bound to suffer.
As a result of the national house market crisis in the US, it is predicted that the prices of houses in Britain will continue to fall in the next two years. This decline in house prices is threatening Britain into an economic recession.
Because of a fall in stock markets in the US, there is a global economic recession. Losses in stock markets lead to a wealth reduction in the households’ wealth and this means less spending. This causes losses to stock investors, this is according to Nouriel Roubini. Because of the credit crisis in the US banks, financial institutions are making massive losses. This has affected the trends in banks in the in other countries. For example banks of major economies have come up with measures to calm financial stress by injecting huge sums of money. With economic recession in the US, aid offered to developing countries by the US will be minimized. This means that many of the projects funded by the US government in the developing countries will have to stop or their funding reduced. This means that financial budgets of these countries’ will be strained creating deficit hence economic recession.(Randeep and others, 2008)
Economic growth in Japan has been due to external demand for its products therefore a recession in the economy of the US will mean a recession in the economy of Japan. This is so because US provides huge market for Japanese electronic products this is according to (Nouriel Roubini, Foreign policy, 2008). On the other hand European firms like BMW have made losses due to reduced sales.
The US federal reserve move to reduce interest rates forced the central bank in Britain to cut down on interest rates to the lowest level leading to a recession.
With economic recession in the US Latin America was also negatively affected. Chile and Brazil are producers of minerals while Argentina produces livestock feeds. So as not to go into recession these countries will have to find other markets since prices in the US are expected to fall by 20% to 30% in the US. (Nouriel Roubin, 2008).
BBC NEWS. Talking Poay, 2001. Is the world heading for recession? 2008. Web.
Content for reprint. Behind the Hitch: The Causes of Economic Recession. 2008. Web.
Nouriel Roubini. The current US recession and the risks of systematic financial crisis. 2008. Web.
Randeep Ramesh, Mark Milner, Julia Kollewe and Sam Jones. World recession watch. 2008. Web.
United Nations Information Service. UN Sees Risk of Global Economic Recession Rising 2008. Web.
YaleGlobal Online. Economy.2008. Web.