Since the collapse of the housing bubble at the beginning of 2007 economists and government representatives have been betting on the odds of a recession in the US economy. Currently we are mid-way through 2008 and still the ‘experts' have not made up their minds about its likelihood. Meanwhile the signs of crisis are everywhere: the mortgage debacle continues unabated, driving down house prices and leaving in its wake a wave of foreclosure, company bankruptcies and shaking to its core the entire financial system, where profits have been going up in smoke as fast as they were created in the boom days of the real estate market. Furthermore, the economic troubles are not limited solely to the industries related to the housing market. The same devastating picture can be seen in the airlines and automobile industries for example, which in fact collapsed well before the bursting of the real estate bubble.
The US government's response to the unfolding crisis has been yet again more of the same monetary tricks that it's used to manage its chronically sick economy every time it has shown signs of a sudden decline: in essence pumping huge amounts of cheap money into the economy in the hope that this will stimulate demand and keep the consumers partying on. For instance, since last September the Federal Reserve has lowered its basic interest rate 7 times and has kept a semblance of order in the financial system through a constant flow of cheap money. However, even though government policies in the short term have saved the economy from a total collapse there seems to be a very high price to pay in store (no pun intended!) One of the main consequences of the Fed's policy of cheap money is to have driven down the value of the dollar, which has set record lows against the Euro a ...