Recession in America and its World Wide Repercussion

Abstract

The main objective of this paper is to analyze the influence of the American recession on the world economy, emphasizing that interdependence is both the cause and the possible solution to the global economic crisis. The paper is structured into five sections. The main conclusions indicate that the recession in America was basically due to domestic problems (the housing market slow down, over consumption and indebtedness of households partially due to the idiosyncrasy of the average American consumer and his reliance on housing and stock markets, the credit crunch resulting from the recession, and the banks' reluctance to lend after the defaults on the housing market and the credit industry). The situation was worsened by the twin deficits, and an increase in the foreign debt. Since most countries depend on America as their top export market and key location for capital outflows, the recession was extended to their economies. The paper also concludes that because of Chinese exports' role in the structure of its GDP and its dependence on American consumers, as well as China's role in funding the US deficits there is a mutual interdependence between China and the US. Despite America's present predicaments, the US dollar still remains as the primary currency in international trade.