What Recession?

Every other day the media is telling us that we’re either in a recession or the government has miraculously saved us from entering one. I’ve even heard talk about an upcoming depression, despite plenty of safety nets in line to prevent another 1929.

These are the times when I really wish I knew more about the economy and what it all meant. I watch my stocks go up and down… and down again, but understanding why is a whole other matter.

The latest AP article I read on the subject explained that Federal Reserve Chairman Ben Bernanke just said that a recession is possible.

Seems like he’s late to the game, doesn’t it?

Ok, so he’s in charge of the Federal Reserve, which must have some significance, economically speaking. He said that policymakers are “fighting against the wind” in trying to steady the economy.

I guess earlier this year he tried to give a pep talk on how great the economic future was looking for this country and now he’s going for the surefire glass is half-empty approach in case of a meltdown. Better to say I told you so late then I never told you so at all.

This is where the tricky economic babblygook comes in and I get lost. The GDP (or gross domestic product) will not grow much over the first half of 2008 – and could contract slightly.

Sounds like a bad situation. Growth is good. Shrinkage is bad.(Just ask a porn star.)

Apparently under a rule someone wrote somewhere, six straight months of declining GDP means we’re in a recession.

So Bernanke thinks that the stimulus package will help economic growth in the second half of this year and into 2009.

Uhm, I’m still under the impression that a $600 tax “gift” is not enough to encourage most folks to run out and spend. Or maybe I’m just so caught up in this personal finance world that I forget how most people spend their money.

If I were the government, I’d give out larger chunks of money to random people, with a weighting on lower income families. $600 is not enough to encourage spending, but maybe $3000 is. So don’t give it to everyone or just limit to really specific demographics and viola, you have more consumer spending. $600 is usually just enough to pay off credit card bills, if you’re frugal with your credit.

Maybe what the government is doing for businesses will help more, as well as those interest rate cuts that I’m still unclear on. One of the key interest rates was cut to 2.25 percent to “spur buying and investing by individuals and businesses.”

I’m not sure how that spurs buying and investing. All I know is that my ING Direct account savings interest % is lower than it’s been in a long time and that makes me less likely to spend any of my money.

I guess homeowners and people who have larger loans benefit from this. I certainly don’t.

Will the Fed drop its interest rate again when it meets at the end of April? There’s plenty of speculation, but no one knows for sure. It seems that stocks will certainly be following the news closely.

Still – most of the trouble seems to stem from banks loaning out these unfixed interest loans to people who wanted to buy houses who just couldn’t afford them. Now those people, and those banks, are figuring out their screwed. I didn’t go to Harvard or anything, but does it really take a calculus scholar to figure out that equation doesn’t work?

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2 thoughts on “What Recession?”

  1. People always assume 'governmenteconomists' know what they aretalking about….particularly thechief one, the chairman of the Federal Reserve. 'Taint so, and ifthey DID know, what they say willbe politically motivated. Mr.Bernanke is SO far removed fromthe cares of the middle (andlower) class, that I'd venture tosay he just doesn't know what he'stalking about….that he wouldn'tknow a recession if it bit himon the butt. It's a safe bet hedoesn't have health care concerns,and I can also surmise he doesn'tknow that (for instance)spaghetti has doubled in priceover the last 8 months…..

  2. I wrote a post awhile ago on the definition of a recession:http://www.uncommon-cents.net/2008/01/23/working-backwards-whats-a-recession/The 4th quarter of 2007 was positive growth; I'm sure the 1st quarter of 2008 will be negative. The question is whether 2nd quarter of 2008 will be positive or negative.With interest rates the way they are, unlike your personal situation, it motivates people to spend -more-: they don't receive much benefit from saving and if they're going to borrow, they'll pay less interest.-Ryan S.

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