Terry Savage
The big 'R' word is in all the headlines these days, while economists and pundits disagree over whether we're already in a recession, on the brink, or able to avoid one. But a recession is not about words or opinions or statistics. It's about your life and your personal finances.
What's a Recession?
The technical definition of a recession is "two consecutive quarters
of negative growth in the economy (GDP )." Of course, the official recession tabulators, the National Bureau of Economic Research, can never actually confirm that we're in a recession until those six months of economic pain are behind us. So don't worry about the labels. Instead, you should worry about how well prepared you are to survive an economic slowdown.
The recession we're now entering (yes, that's my opinion) will be unlike previous major slowdowns. You may not remember back to the early 1980s when interest rates soared to keep up with inflation . That was a more "traditional" recession, with tight money and high interest rates causing an economic slowdown that spread from housing to autos to steel. And then after a year or two, recovery started in most of the economy. Of course, some jobs in autos and steel were lost forever, but the economy rebounded in other areas.
The first recession of this new millennium will be quite different. For one thing, the pain will be more widespread. This time around it isn't only laborers who will lose jobs. The banking and financial services industries are already cutting employment, as well as retailing and other consumer-related sectors . And this time around consumers are more exposed to those rising rates -- on credit cards and on adjustable rate mortgages , which were not a major part of our economy 26 years ago.
And, although the Federal Reserve is desperate to push interest rates lower to get the economy moving, they'll have a much tougher job this time around. That's because lenders won't cut rates for people already overloaded with debt . And because America is deeply in debt as well.
Cramer: We Need Rates at 1.5% |
, notes and bonds . Lately, they've been using the dollars to invest in American banks and financial services firms, hit hard by the mortgage mess.
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