Recession 101: A Cheat Sheet For The Financially Challenged
If headlines about Bear Stearns� collapse this weekend made you think �football team� instead of �investment bank,� don�t panic.
Here are the answers to some basic questions on the recession that can help clear the fog on the economic forecast:
What�s a recession, anyway? The official definition is when GDP growth is negative for at least 6 months. In the last quarter, GDP growth was a sad 0.6 percent. [FOX News]
Clues that you�re in one: Sluggish GDP growth, a halt in businesses expansion, fewer job opportunities, higher gasoline prices and heating costs � all problems we can see today, thanks to the subprime mortgage crisis, sinking home prices, and a destabilized credit market. [USA TODAY]
Why is it bad? If we�re really in a recession, then the next thing to fear would be a depression, which is a deeper, broader, and longer recession. Think Herbert Hoover, 1929, Grapes of Wrath, and unemployment lines around the block.
How does it affect you? Fewer jobs, longer work hours, a free-falling U.S. dollar, even more expensive mortgages, diminished retirement savings, reduced home equity and wealth, harder-to-get loans, and steeper prices for everyday goods and that European honeymoon you�ve always dreamed of. [USA TODAY]
Are we in one now? Although we�ll have to wait a few more months to get the official GDP results, the forecast isn�t good. According to a national poll, more than 3 in 4 Americans think we�re in a recession. [CNN]
Should we try to cheer up? Well, maybeâ��pessimism creates more problems, as a recession can become a self-fulfilling prophesy. Says Economic Policy Institute economist Jared Bernstein,“If folks donâ��t feel confident enough to make that purchase â�¦ that reverberates negatively throughout the economy.â��
How does the collapse of Bear Stearns relate to all this? The Federal Reserve�s selective bailout of the nation�s fifth-largest investment bank is a flare signal of today�s deeper economic problems. It�s also a prime example of the Bush administration�s hypocrisy: they�re gung-ho when it comes to bailing out one of Wall Street�s central players, but they�re all �tough love� with average homeowners devastated by the foreclosure crisis. [Center for American Progress]
Typical Bush behavior: giving get-out-of-jail cards to business bros over average Joe Shmoes.
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