This is a great article that sums up how we got to where we are currently with the economy, what people are thinking about the economy and what’s likely ahead for us.
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Here are the points I came away with (most of this text comes right out of the article):
- Nearly two-thirds of Americans believe the economy has yet to hit bottom
- A growing and vocal minority of economists believes that there will be a double-dip recession primarily because of the intransigence of high unemployment and the rapidly faltering housing market.
- The cause of the 2008-2009 recession:
- The first trigger was the drop in housing prices, which robbed many people of their primary access to capital. As that access disappeared, so did the availability of credit. Consumer buying power evaporated and business cut inventory and production. Joblessness rose. Finally, consumer confidence plunged.
- Over 17% of the official unemployment numbers, or 1.4 million people, have been out of work for over 99 weeks, nearly 2 years.
- they are no longer eligible to receive unemployment insurance benefits, unless congress extends benefits again – which just adds to this problem.
- Unemployment claims are running well above expectations, and recently hit a six-month high.
- There is nearly no jobs creation in the private sector.
- Real estate prices continue to drop, particularly in the hardest hit regions such as California, Nevada, Florida and Michigan.
- The federal, state and local governments are in no position to lend assistance to businesses, most of which lack access to capital.
- Banks are not prepared to lend to small businesses, especially those with modest balance sheets and relatively low sales. This presents a problem for employment since companies with less than one hundred workers have traditionally been the largest creators of jobs.
- The second dip of the recession that ended in 2009, according to economists and the federal government, is likely to begin within the next two quarters if certain conditions are met:
- These conditions weren’t given, but it’s pretty obvious that the lack of recovery in key areas, like jobs and housing, are critical to a recovery.
What a double-dip recession would look like (article text in quotes):
- In those areas where housing prices have already dropped 50% or more, prices will continue to fall.
- It’s in these areas where the unemployment will be the highest and local governments will have an increasingly more difficult time providing basic services.
- Real estate values could drop another 20%.
- in areas that have not been hit as hard, the “protracted unemployment and the unwillingness of banks to lend would make otherwise attractive all-time low mortgage rates unappealing.”
- Unemployment quickly increases back to above 10% (just think what the U6 number will be!).
- This recession will be worse than in 1982, as we lost a large portion of our manufacturing base over the past 3 decades.
- “Many Americans who worked in manufacturing before the recession cannot be retrained, and the factories where they worked will not be reopened. Many companies have recently adopted the policy that they will keep as much of their work-force temporary for as long as possible. This keeps the cost of benefits low and allows firms to fire people quickly and without severance. A hiring strike by American businesses would contribute to putting 200,000 to 300,000 people out of work per month.”
- Here’s a video on the progression of unemployment:
Continued in the next episode of The Preparedness Podcast.