The current economic slowdown we are facing will not just be limited to the United States, a forecast by the International Monetary Fund claimed this week. The dollar sank yet again against the Euro in response to this news on Wednesday.

A global slowdown, coupled with out of control inflation and a sharp decline in global output and housing markets signals the inevitable possibility of the beginning of a situation we have not faced since the 1930’s: a worldwide depression.In the forecast, the International Monetary Fund (IMF) said that the United States’ credit crunch and housing slump is the “largest financial shock since the Great Depression”. With Americans becoming upside-down in their homes overnight, and banks getting the carpet pulled out from under them on a whim it is no surprise that we are in dire straights.

The IMF predicted the U.S. economy will grow by a snails pace of only 0.5% in 2008, which would be the worst growth in 17 years, when we faced the end of a large recession in the late 1980’s and early 1990’s. In addition, the global economy is expected to grow by 3.7% this year, as compared to 4.9% last year, a very large one year decrease. To make matters worse, there is at least a 1 in 4 chance the global economy will grow by only 3% or less this year, the IMF predicted, which would signal a global recession. They also predicted France, Germany, Britain and Canada will face slight economic slowdowns this year and possibly next. With 30% of the entire world’s GDP coming from these countries alone, even the slightest contractions can throw the global economy into a sharp downward spiral.

On the flip side, many investors have been facing the fact that we may be entering into a recession, and have already adjusted their investments to reflect so. Stocks have been relatively stable recently in response to gloomy economic news, such as the job losses and increasing unemployment rate, write offs and record losses by major financial institutions and ever-increasing oil prices. Some experts claim investors are putting in a “floor” in the stock market to help starve off losses, however if no sign of a recovery is evident by late summer, more sell offs and bad news may be on the way.

Treasury note prices are also on the rise, as the Fed has been actively issuing Treasury backed securities in exchange for other debts to maintain liquidity in the financial markets. Treasury notes are also relatively stable and much less risky than other debt such as mortgage backed securities and stocks, so investment banks are flocking to them for some stability in their portfolios.

Time will tell if the Federal Reserves of the world can slow down the oncoming recession. The United States it not the only country facing a burst of the housing bubble. Many European countries are facing property value declines on a larger scale than we are, and it will only be a matter of time until the ripple effect spreads to all economies.

By definition, a recession is a decline in a country’s real GDP, or a negative real economic growth for two consecutive quarters. A depression is a long or severe recession.

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