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U.S. Loses Title of "World's Biggest Economy"
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The slumping dollar has caused the U.S. to lose it’s title as the world’s biggest economy to the euro zone this week. A trend that has been worrying investors all over the world, the fall of the US dollar continues with unknown repercussions on the horizon.
The new economic heavyweight of the world won the title (which is based on the combined GDP of the 15 countries which use the euro) due to the record surge in the value of the euro, now at around $1.56 per euro.
To add to the bad news, Martin Feldstein, the President of the National Bureau of Economic Research, a private sector group that is considered the arbiter of U.S. business cycles, stated Friday that the U.S. is in a recession that could be “substantially more severe” than recent ones. Feldstein went on to say that the downturn could be the worst in the United States since World War Two.
 Feldstein said the combination of monetary and fiscal stimulus and the falling dollar "will help to dampen the magnitude of the downturn but won't be enough to sustain an expansion."
"The housing situation is getting worse by the day," he noted, as more and more houses drop below 100 percent loan-to-value ratios, encouraging homeowners to walk away from their properties.
More broadly, in global credit markets, "there is a lack of confidence leading to a lack of liquidity ... without credit creation, we can't have economic growth," Feldstein said.
Feldstein noted "powerful forces (that) will continue to drive inflation higher." And while inflation expectations are still relatively well contained, "you wonder how long that's going to last," he said.
(news.yahoo)Via: news.yahoo |
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