Recession Take 2

America, the World and the second great recession

 America’s economy is in a downward spiral. It went from being stagnant to outright volatile. In the past few months the debt ceiling has increased, the credit rating has decreased, and now the stock market seems to being doing both on a daily basis. So what is our economic outlook with these recent developments?

Economists are warning of a recession… again.  According to the Wall Street Journal, “The latest round of economic news has raised concerns among the Federal Reserve’s board of governors that the chance of a double-dip recession is increasing.”

A recession is defined as a period of temporary economic decline during which trade and industrial activity are reduced. Recession.org states, “Professionals and experts around the world believe that a true economic recession can only be confirmed if Gross Domestic Product (GDP) growth is negative for a period of two or more consecutive quarters.”

The GDP is the total dollar amount of all the goods and services that are produced and provided in the country and although it is the main criteria for a recession many economists do not agree. Experts feel that many other variables must be taken into consideration such as debt, unemployment rates, and consumer spending.

In 2010 America’s GDP was estimated to be approximately $14.7 trillion. However, the national debt is $14.6 trillion. Therefore the national debt is nearly 100% of what America produces monetarily per year. In addition the unemployment rate is 9.1% as of July 2011 and consumer spending is down.

If America is headed for another recession, it would only be one more downturn in America’s long history of economic pitfalls. Since 1790 there have been approximately 47 recessions in United States history, some of the more notable include the panic of 1907 which lasted approximately 1 year and the most recent in December 2007.

The 2007 recession has been termed the Great Recession. It led to the collapse of the United States housing market and was the main contributor to the current global financial crisis. This recession was one of the worst in America’s history and led to the failure of numerous financial institutions including Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and AIG.

The Great Recession was also a preceding factor to the automobile industry’s literal crash in which the government responded with a $700 billion bailout and a $787 billion stimulus package.

The extent of the damaged sustained during the Great Recession was unprecedented. The recession lasted 18 months and to date was the longest of any recession since World War II.

According to the National Bureau of Economic Research, “It was decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.”

Conrad DeQuadros, a senior economist at RDQ Economics commented on the current financial climate and gave his opinion on what another recession would mean for America at this point in time. He affirmed, “It would be disastrous if we entered into a recession at this stage, given that we haven’t yet made up for the last recession.”

President Obama recognized the severity of the situation as he has done several times before. Recently he stated that the country’s “urgent mission” now is to expand the economy and create jobs.

Excuse me President Obama, but wasn’t that always the goal?

President Obama ended his commentary on an optimistic note stating “I have enormous confidence in the basic regenerative capacity of the American economy and the American people.”

I am glad to see the President is confident in his citizens- but are they confident in him? Recent approval ratings would suggest not.  Approval of his handling of the economy fell by 11 percentage points from 37 percent in mid-May according to MSNBC.

Economic recovery will certainly be a tumultuous task. According to the New York Times, “In the four years since the recession began, the civilian working-age population has grown by about 3 percent. If the economy were healthy, the number of jobs would have grown at least the same amount.”

But the economy is not healthy and the number of jobs did not grow as they should have. Instead, the number of jobs has shrunk and currently the U.S. economy has 5 percent fewer jobs—or 6.8 million—than it had before the last recession began. The unemployment rate was 5 percent then, compared with 9.1 percent today.

MarketWatch’s chief economist Irwin Kellner is well versed on the economic situation and sees little hope. He commented on consumer spending stating, “Since retail sales make up over half of all consumers spending, it is safe to say that at least one-third of the gross domestic product is now falling. It is also not a stretch to conclude that the rest of consumer spending, which is services, is soft as well.”

Noted investor Jim Rogers is another who is appalled by America’s lack of financial management. He feels that the United States does not even deserve the current AA+ credit rating and admitted to CNBC that “It seems to me it’s physically, humanly impossible for the U.S. to ever pay off its debt. They can roll it over and continue to play the charade, but the U.S. is bankrupt.”

It seems the overwhelming consensus is that another recession is on its way. Economists and investors are warning of this impending financial doom but will the government heed this advice or is America destined to experience the Great Recession take two?