No Credit, No Problem … So Far
By Brad McDonnell on Thursday, September 27th, 2007 :: 11:28 amCategory: Financial News
The current credit crunch might pose significant threats to stalling economic growth in upcoming months, but so far, the economy has curbed those threats and grown at its highest rate in more than a year.
The Bureau of Economic Analysis released its report Thursday indicating real gross domestic product (GDP) grew at a 3.8 percent annual rate in the second quarter of 2007, surpassing the first quarter’s growth rate of 0.6 percent. The primary indicator of economic growth, GDP measures the output of goods and services produced within the United States.
While the economy continues to grow, the flow of consumer credit is declining and could soon lead the economy into recession.
The extension of consumer credit plays a vital role in shaping the economy. If consumers face difficulties in getting credit, they will reduce spending, while businesses will reduce investment. The circular flow of spending and investment represents the backbone of the domestic economy.
Consumers need credit to increase spending, and businesses need spending to generate revenue. Consumer spending is at its lowest pace in more than a year, and the effects may not show for months when businesses stop producing.
The Federal Reserve countered the credit crunch, along with the slumping housing market, last week by reducing the fed funds rate, a key consumer interest rate. The fed’s policy goal for the reduction is to provoke spending and economic growth.
Author Bio: Settle your debts today! Read about debt relief from financial writer Brad McDonnell, who is an expert on personal finance topics involving debt consolidation.
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