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WASHINGTON — The unemployment rate leaps to a two-year high, record numbers of people are forced from their homes and Wall Street nose-dives again. Such is the fallout from a housing meltdown that threatens to slingshot the country into a recession.
The big economic question these days is whether the weakening economy will survive the strains or collapse under them.
The odds have grown that the economy will slip into a recession. At the beginning of last year, many economists put that chance at less than 1-in-3; now an increasing number says it has climbed to around 50-50. Goldman Sachs, the biggest investment bank on Wall Street even thinks a recession is inevitable this year.
Hopeful it can be avoided, President Bush and the Democrat-controlled Congress are exploring economic rescue measures, including possible tax rebates. Federal Reserve Chairman Ben Bernanke pledged to lower interest rates as needed.
The idea is to induce people to boost spending, especially on big-ticket items such as homes and cars, and revitalize economic activity.
"The recession gorilla is there. The question is can the Federal Reserve do enough to avert a recession?" asked Brian Bethune, economist at Global Insight. "We think the odds are close to 50 percent that there will be a recession. It is high — no question about it."
Much hope rides on the Fed. By dropping rates, it can act quickly — faster than Congress or the White House could agree on and deliver an economic boost.
"The Federal Reserve is not currently forecasting a recession," Bernanke said last week. "We are forecasting slow growth."
Bernanke signaled that a rate cut would come this month. Many economists believe a key rate, now at 4.25 percent, could fall by as much as one-half of a percentage point. Such a cut would lower the rates that are charged to millions of consumers and businesses for many different types of loans.
Analysts predict the Fed will keep doing that in the months ahead as part of a campaign that started in September, when the central bank cut rates for the first time in four years.
Trying to put the fragile economy back on firm footing is the biggest challenge for Bernanke since taking over the Fed nearly two years ago. His job requires a deft reading of the economy's vital signs and keen insights into what makes people and businesses tick. It is their behavior that shapes the economy. And it is in turbulent times that the Fed chief needs to bolster public and investor confidence.
Still, Wall Street is on edge. The Dow Jones industrials plunged nearly 250 points on Friday. Also, consumer confidence tumbled in early January.
Bill Cheney, chief economist at John Hancock Financial Services, puts the odds of a recession as high as 40 percent. "There are a lot of headwinds and the economy probably has enough momentum to get through, but when things get rough, there are a lot of ways things could go wrong," Cheney said.
The fear is that people will clamp down on the spending and businesses will put a lid on hiring and capital investment, sending the economy into a tailspin.
By one rough rule of thumb, a recession occurs when there are two consecutive quarters — six straight months — when the economy shrinks.
The National Bureau of Economic Research, the recognized arbiters for dating recessions, uses a more complicated formula. It takes into account such things as employment and income growth. By that measure, the last recession was in 2001, starting in March and ending in November.
Tax rebates aimed at stimulating the economy were part of Bush's $1.35 trillion in tax cuts in 2001. They were credited with helping to make the recession short and mild.
The current housing slump, made worse by a credit crunch, is weighing heavily on economic activity.
Upcoming reports are expected to show the economy grew at a feeble pace of just 1.5 percent or less in the final three months of last year and will be weak in the first part of 2008. Consumers, whose spending is indispensable to a healthy economy, are expected to have tightened their belts.
High energy prices, weaker home values that make people feel less wealthy, and a deteriorating jobs market all figure into more caution on the part of consumers.
The unemployment rate jumped to 5 percent in December from 4.7 percent, fanning recession fears. It was the biggest one-month gain since October 2001, during a time of massive layoffs in the travel industry after the Sept. 11 attacks.
Lawrence Summers, one of President Clinton's treasury secretaries, said the odds of a recession this year went up after the dismal employment report. He advocates temporary tax cuts and emergency spending. "It is now conventional opinion and many fear that there will be a serious recession," Summers wrote recently in the Financial Times.
Martin Feldstein, who was President Reagan's top economic adviser, and former Federal Reserve Chairman Alan Greenspan have urged greater government intervention. Greenspan recently said the economy is "getting close to stall speed," and Feldstein has said his best guess is that the economy "has not turned down and it is still expanding, but very weakly."
© 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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| Which businesses hold up well in a recession? | Associated Press | Mon Jan 14 | 4 |
| Sales Tumble, Fanning Recession Fears | Associated Press | Tue Jan 15 | 0 |
- Public Discussion (26)
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{"commentId":1358438,"authorDomain":"leftist"}
wasting billions and billions to conquer other countries - that is the root of our problems. Bush needs to be in prison.
{"commentId":1358438,"threadId":"202329","contentId":"1223889","authorDomain":"leftist"}
- 7 votes
#1 - Sun Jan 13, 2008 10:59 AM EST{"commentId":1358573,"authorDomain":"ottawahitech"}
{"commentId":1358583,"authorDomain":"JoulesBeef"}
it's more than that.. the tens of thousands of bush-injured americans will strain this country for a long time as we take care of them. not to meantion we wil have to logistically support some new permanent bases in iraq (whats that congress banned permanent bases??, well i guess that depends ont he meaning of the word permanent..muahauahaha)
Bush does have his own dictionary.
torture war permanent threat "economies doing good"
yeah he has made up new defs of all these things
{"commentId":1358583,"threadId":"202329","contentId":"1223889","authorDomain":"JoulesBeef"}
- 4 votes
{"commentId":1358593,"authorDomain":"narky"}
What was the root problem on October 29, 1929?
{"commentId":1358593,"threadId":"202329","contentId":"1223889","authorDomain":"narky"}
- 3 votes
{"commentId":1358825,"authorDomain":"SuperUnspecial"}
I don't know as there is a "root" of the problem. But there are many factors such as
- still overvalued dollar
- trade deficit
- budget deficit
- Iraq war
- regulatory and financial policies written by the businesses who are to be regulated. (You think the change in bankruptcy laws was an accident or the banking industry trying to protect themselves from the problems that new mortgage laws and practices were creating?)
- nearly 30 years of focus on the supply side of the equation
- extraordinarily high rates of imprisonment that are both expensive and reduce production
- NAFTA and emphasis on off-shoring jobs, to name a few
But ultimately, this recession is nothing new, working people have been in a recession since shortly after Bush took office. You can only redistribute money upwards for so long before it ends up harming even those at the top too.
{"commentId":1358825,"threadId":"202329","contentId":"1223889","authorDomain":"SuperUnspecial"}
- 4 votes
{"commentId":1358844,"authorDomain":"ottawahitech"}
{"commentId":1358887,"authorDomain":"SuperUnspecial"}
not specifically, the "regulatory and financial policies,,,,," point was meant to allude to them.
I hate hearing those things repeatedly talked about as the cause for the current melt-down. They are, of course, the cause of the current meld-down, but they're also the cause of the economic growth of the last 6-8 years and they are a direct result of legal, regulatory and financial policies. The policies caused unstable growth, so I think the policies should be blamed for the instability.
It's much easier for no one to take responsibility and just talk about this phenomenon as if it were inevitable, because, it wasn't inevitable it was the result of choices our government made.
{"commentId":1358887,"threadId":"202329","contentId":"1223889","authorDomain":"SuperUnspecial"}
- 2 votes
{"commentId":1358962,"authorDomain":"ottawahitech"}
{"commentId":1359000,"authorDomain":"tacitus13"}
I hate hearing those things repeatedly talked about as the cause for the current melt-down. They are, of course, the cause of the current meld-down, but they're also the cause of the economic growth of the last 6-8 years and they are a direct result of legal, regulatory and financial policies. The policies caused unstable growth, so I think the policies should be blamed for the instability.
I do find it fascinating that everyone seems to have forgotten that we were expecting a severe recession in 2001. Due to the tax cuts and other financial policies utilized, the recession was so light that nobody seems to remember it. Of course, we merely delayed the inevitable and compounded the problem during the meantime.
{"commentId":1359000,"threadId":"202329","contentId":"1223889","authorDomain":"tacitus13"}
- 2 votes
{"commentId":1359313,"authorDomain":"SuperUnspecial"}
oth
Yes, basically, also had the new bankruptcy laws not been enacted (in I think, 2004), banks would have thought twice before lending to unqualified borrowers. But, they saw the inevitable fall coming, and in order to shield themselves from bad business mistakes made in lending for housing and credit cards, they went and got the Federal Nanny to bail them out.
(Also, the home ownership tax credits should be really rethought. The whole "ownership society" has proved itself to be problematic too. Yes, it helps neighborhoods, but it has proven to have a negative impact on GDP and job growth because people are less able to move for jobs.)
{"commentId":1359313,"threadId":"202329","contentId":"1223889","authorDomain":"SuperUnspecial"}
- 3 votes
{"commentId":1359357,"authorDomain":"ottawahitech"}
{"commentId":1359669,"authorDomain":"SuperUnspecial"}
"home ownership tax credits", I guess I totally misspoke here, sorry...I meant the mortgage-interest tax deduction, which is worth about $80 billion and only available to homeowners with mortgages. There was a really great article in the Atlantic Monthly on it in December, alas, subscription is need to read more than the first paragraph. But, still, the advantages to home ownership are not universal and they shouldn't be given an economic incentive, since a lot of people help the economy more by being mobile. That's lost GDP (from people who want to move to better jobs not being able to) and lost tax revenue (from the deduction).
but I thought they actually made it tougher to go bankrupt?
Exactly, the banking industry made a bunch of bad loans, using questionable criteria, sold on a lot of hype to people who didn't know what they were getting into and then, when they realized that there would be mass defaults (in the case of credit cards) and foreclosures (in the case home loans), they had congress change the bankruptcy laws so that their bad business choices would be protected.
{"commentId":1359669,"threadId":"202329","contentId":"1223889","authorDomain":"SuperUnspecial"}
- 3 votes
{"commentId":1359713,"authorDomain":"ottawahitech"}
{"commentId":1359724,"authorDomain":"tacitus13"}
when they realized that there would be mass defaults (in the case of credit cards) and foreclosures (in the case home loans), they had congress change the bankruptcy laws so that their bad business choices would be protected.
Not sure how that helps the banks. If a bank forecloses on a home, this is pretty much the end of the story, isn't it?
The banks would make the risky home loans and then sell them rather quickly.
{"commentId":1359724,"threadId":"202329","contentId":"1223889","authorDomain":"tacitus13"}
- 3 votes
{"commentId":1362803,"authorDomain":"ottawahitech"}
{"commentId":1363309,"authorDomain":"MightyMait"}
I didn't really follow this one at the time, but I thought they actually made it tougher to go bankrupt?
Well, wouldn't making it harder for people to declare bankruptcy mean that lenders would be more assured of getting the money from the borrower or defaulting on the mortgage without fear of the borrower seeking and obtaining bankruptcy protection?
{"commentId":1363309,"threadId":"202329","contentId":"1223889","authorDomain":"MightyMait"}
- 2 votes
{"commentId":1358601,"authorDomain":"JoulesBeef"}
without the economy what will the bush heads have left to say "look he is awesome"
dollars in teh toilet
housing market is crap
we have a permanent war going on with no end in site and iraqi still to far violent for reporters.
the wrodl distrust us and hates us.
marginalised iran is gaining power
terror attacks are on the increase
(and for those that want to say but not here,.. well other countries dont liek you making it more dangerous forr them either.. and if we are fighting terrorist in iraq, then the death there are caused by terror, therefore bush DID NOT stop any terror, he simply outsourced the vitums to a differnt segment of our population)
how many americans have we lost under Bush watch?? yeah i know to make me safe but saddam wasnt trying to kill me.. oh wait you werent trying to make me safe, you were trying to make the iraqis people safe, i must have mist understood with all them pictures of mushroom clouds you shoved in my face.. funny though, since you have tried to make iraq safer they have suffered at the minimum 52 x 9/11s.. WOW I bet they ar glad saddam is gone.
You know if I am burning alive, i dont even want bush to throw a bucket of water on me.. as it will probably be gas.
{"commentId":1358601,"threadId":"202329","contentId":"1223889","authorDomain":"JoulesBeef"}
#2 - Sun Jan 13, 2008 12:02 PM EST{"commentId":1358733,"authorDomain":"narky"}
The war will continue, including all the aforementioned contentions noted, under the next administration.
{"commentId":1358733,"threadId":"202329","contentId":"1223889","authorDomain":"narky"}
- 1 vote
{"commentId":1358720,"authorDomain":"ramonlo"}
tax rebates??? wasn't this what this administration tried to do several years ago to induce spending? well, when things are in the crapper people SAVE, they don't take that money and plop it on a plasma TV. Ok, maybe some idiots might....
{"commentId":1358720,"threadId":"202329","contentId":"1223889","authorDomain":"ramonlo"}
- 3 votes
#3 - Sun Jan 13, 2008 12:47 PM EST{"commentId":1363311,"authorDomain":"MightyMait"}
The whole system makes no sense to me. I wish it did, but it just doesn't.
{"commentId":1363311,"threadId":"202329","contentId":"1223889","authorDomain":"MightyMait"}
- 2 votes
{"commentId":1363852,"authorDomain":"ottawahitech"}
{"commentId":1363838,"authorDomain":"ottawahitech"}
{"commentId":1366279,"authorDomain":"ottawahitech"}
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