Last evening I was reading my RSS subscriptions, commenting on some threads about the Feds decision to lower interest rates, and I really started to think about the US (and world) economies. Ultimately, the question “is another depression on the way” came to mind yet again… So I decided to put some things down on paper (and then into the blog) in order to assess the question.
- The speed of current deep recession
The US went from a shallow recession, with low unemployment, to one of the worst financial crises since 1929 in a matter of weeks. Yes, the events were in the building for months, if not years, but it all came apart in roughly 4 to 6 weeks…. and no one was prepared for how quickly it happened.
- Credit is hard to come by
The credit industry is contracting, and contracting fast. Credit Card companies are cutting limits of superior borrowers, for some it’s hard to get a mortgage, companies – solid companies – cannot find funding even though they have revenue to cover their costs, and banks are not lending to each other. Basically, spending is crawling because the pool of money has shrunk
The price of energy (oil, specifically) was on a wild ride the last 4 years, up to almost $150 this past summer and down to $40 the past week. However, due to limited supplies and production, oil will start to rise over the next year once the economies of the world begin to stabilize, causing pressure on economic growth once again.
The government is so far in debt, it will never be repaid, and our financial institutions are in the same boat . Essentially, we are spending money today that we don’t have in order to solve a problem. In doing so, however, we may be creating a bigger problem down the road.
Oh, yea, and the consumer is so far into debt that they have no money and cannot obtain credit (see #2). If the consumer cannot spend, how will the economy recover?
- Unemployment is on the rise…
Going from historic lows to levels not seen in about 20 years, unemployment will play a big fact in any the economy’s recovery. If it continues to rise, problems will persists.
- Mortgage meltdown, real estate bubble…
Huge over production of housing, mortgages to anyone and everyone that had a heartbeat and property values inflated beyond true value…. it plays into everything. Spending, debt, credit…. and if this does not stabilize, how will the credit markets stabilize?
There were initial thoughts… I do believe the economy is dangerously close to moving into another depression. While I do not believe any depression will mirror the Great Depression, it is strikingly like the Long Depression on 1873.
Without a doubt, the actions taken by the government will provide some type of recover in the market – I just doubt if it will be a sustained recovery.
Oh, and another random thought…
I am slightly concerned about how the stock market has been acting the last two weeks. It is back to trading upward on negative news. The economic situation has not changed, so why the movement towards the positive?
Either a bottom has been found or a suckers rally is taking place…. I just hope it is a bottom.