Where are you from? Another planet or something? After last weeks’ surge of reports on the housing market, including some figures that were pretty scary in the construction industry, if you still think we aren’t drowning swiftly into recession, you must be from some other planet!
The truth is, the economy is essentially in a recession even if it hasn’t met the technical definition of one yet (two consecutive quarters of negative growth in the nations gross domestic product (GDP)). GDP measures the value of all goods and services produced in the United States and is the best barometer of the country’s economic health. Having once been a nation that built wealth based on our manufacturing capabilities, we have recently become a nation of consumers. Our exports have steadily declined and our imports have steadily increased. The fascinating thing, even though not a good sign for near future upturn, is the fact that consumer confidence, in recent times, has decreased tremendously.
“I would say, by any commonsense definition, we are in a recession,” Buffett said on CNBC. Buffett also mentioned that it was not clear how long the recession would last because measuring the possible length of time for something of that magnitude cannot be predicted.
To further strengthen this case, a survey released last week by the National Association for Business Economics showed that 45% of economists are predicting a recession in 2008.
We saw the report from the Commerce Department that stated an increase at a low 0.6% in the quarter that ended Dec. 31. Historically the GDP increases by an steady average of approx. 3%.
Don’t deny it! Our nation can see the abundance of evidence at this early stage than any other economic downfall of recent times — plunging home sales and prices, falling consumer confidence and spending, surging unemployment, rising inflation, rising oil prices, and more.
A Recession is coming! With nothing the Federal Reserve, the Treasury, the White House or Congress can do quickly enough or forcefully enough to stop it altogether, you may want to think of ways to battle this recession. The government currently passed a growth policy in the form of a stimulus package that economists are afraid may be spent on the majority of imported goods. The Federal Reserve provided the economy with a reduction in the federal funds rate to 3%, which many think may be dropped again on March 18th, that would only dilute the dollar value! I’m sorry, but if the government was smart enough to know how a stimulus package literally affects an economy, they would have used it more directly creating jobs and allowing a recession of this sort to give American’s a little slap on the hand for being naughty in over-consuming!
A friend of mine in class told me the other day that his grand mother’s thoughts on money were completely different than that of the current generation. He mentioned that She went through the depression, learned how to be thrifty and cautious which increased savings and lowered consumption. However, once her generation started to pass away you see inherited money being passed down to younger generations that think these folks were rich, when in reality they were thrifty, common sense, as-need to consume thinking Americans. Now the vicious cycle begins again and here we go spending more than we should! If you want to know more about the Savings Problems visit CNN — The zero-savings problem . You can also visit the Bureau of Economic Analysis website and see what the Personal savings rate has been historically on a chart (Click here for the Chart) .
Seriously, with inflation already surging and the dollar already sinking in value, it’s now likely that the government or the Fed’s bags of goodies: helping us out of the housing market mess, stimulus packages and interest-rate cuts, are likely to inflate the dollar (in the long run) and push it over the edge, causing commodity prices to shoot through the roof. This may only worsen the current situation we find ourselves in.
As a student, the most interesting thing about studying economics today is knowing that this recession is unlike any other recession I’ve ever read about! Okay, so I haven’t exactly been through a recession where I was conscious of what was going on, but it is still much different from past depressions some of you might have actually experienced!
The Nation, like a human body when it shuts down its vital internal organs one by one until finally nonfunctional, has some vital parts of the economy faltering that we are scrambling to stop from shutting down. For the first time since the early 1980’s, we are witnessing the virtual shutdown of some of the nation’s important markets — from many kinds of mortgages to certain types of corporate bonds and more!
The value of residential real estate is plunging nationwide for the first time since the Great Depression. And for the first time in U.S. history, countless middle-class Americans — even those with good credit– are defaulting on their mortgages (creating an increase in foreclosures), abandoning their homes, and sending a whole new downward spiral effect to the banks!
Are we in a Recession? The real question should be “how will I come out of it okay?”
Recession, Recession, Recession, get used to hearing that word. Don’t be afraid of it! Prepare yourself and your family in the fight against Recession. If time permits, I’ll extend this article in a second part that speaks a little more about what you can be done to fight this recession. Until then!
Respectfully,
Tony Tovar
The University of Texas at Austin
“Because everything affects Economics!”
Updated related links:
The mismanagement of the U.S. economy
Personal bankruptcies highest since 2005
April 3rd, 2008 at 1:41 pm
In short, many economist think we are in a recession. Including our very own FED! Ok, so what does it all mean… We are essential in a recession due to the fact that America has become a consumer driven economy. We use to depending on our exports but those have decreased severely. Granted, I think it has something to do with the consumer driven generation that came from the Saving/Manufacturing Gen of the Depression. That does make a little sense?
April 3rd, 2008 at 1:50 pm
Sorry about that Nicksus, I forgot to mention that I will be changing up the blog a bit and talk more in no-so-scholastic ways from now on because I find that I sometimes will go throgh what I write and not understand too!