Saturday, October 25, 2008

Understanding the Recession

Even though we are not officially in a recession, it feels like one. Several months ago we were regularly treated to debates about if we really were in a current discussion has evolved to how deep and how long the recession will be. From various polls, the general public feels we are in the middle of the recession now. Meanwhile the economists and experts appear to be arguing when it did or will officially start and what model will be used to determine the recession's existence. This brings us to a very interesting article from NPR titled Official or Not, Consumers Sense A Recession. Lets take a look -

When it comes to the financial turmoil, "it's the worst crisis since the Great Depression," says Jeffrey Frankel, an economics professor at Harvard's Kennedy School of Government, who sits on the Business Cycle Dating Committee of the National Bureau of Economic Research, a nonprofit organization founded in 1920. The committee, which comprises several economists, is responsible for officially calling recessions. And it typically weighs in several months after the fact — once the members have had an opportunity to analyze a broad range of statistics.

Dennis Jacobe, the chief economist for Gallup, says polls it has conducted demonstrate that people have felt like they're in a recession "for a long time." He says that 80 percent to 90 percent of people believe the economy is worsening. Gallup has registered historic lows in consumer confidence and increased pessimism about the jobs market, which Jacobe says is an indicator that jobs numbers will continue to worsen.

But home equity lines of credit have dried up, leaving some dreams in the dust. What's more, the credit culture has chipped away at Americans' savings habits: Jacobe says surveys indicate that only 40 percent of the U.S. population has $10,000 or more in savings that can be easily tapped.

[John Schmitt, an economist for the Center for Economic and Policy Research] says the current recession started in December 2007, and he expects it will be "long and nasty," driven by a continued decline in house prices; he thinks prices may fall another 10 percent to 15 percent. He estimates that we might start to emerge from the recession in December 2009, but the labor market recession probably won't end until 2011, he says.

[Frankel] says that the decade of stagflation that Japan went through in the 1990s and the Great Depression in the U.S. may also have some parallels to the situation today: Both were ushered in by the crash in real estate and stock markets. "Hopefully, the difference," he says, "is we know how to handle it better this time."

People have been living off of debt for years. When property values were sky rocketing and credit was easy it was easy to get in massive debt. Selling a property or refinancing were two common methods for alleviating one's economic problems.

With a national decline in home values - the middle class vehicle for wealth and security - going on 2-3 years depending on the location it is no wonder people see decline. They see decline in their wallets. We in middle class America know our source of wealth has declined. It just took time to filter through the system.

1 comment:

rachel said...

Recession is scary but it has to end somewhere.This may not be a short one but I know that this country can ride it out.

Btw, I found a survey about this recession that I find important to take part in.

Hope you agree.