Are we headed for a recession?

[maddash]

For you economists out there - what are your thoughts on the housing recession, the disastrous issues with subprime mortgages, and the weakening dollar? Will it lead to a recession?

It's seems like economists can't agree on what will happen, but most agree that a recession is at least a possibility. Even with help from the Fed things could remain ugly in the market for a while, I think that's pretty much understood, but whether or not that will spill over into the general economy... I don't know. The job market is apparently still strong, so I don't think we should start worrying about unemployment anytime soon, but I also think Americans are spending more than they can afford, and that consumption bubble is eventually going to burst. With the weaker dollar, foreign investors won't be satisfied with just buying up our dollar debt, they're going to want hard assets - I could see some old school US companies being bought out by the likes of China.

Anyway, most of this stuff is over my head. Outside of the investment market, things could remain just peachy, but I also have a feeling that the number one talking point for the upcoming election is going to be the "economy stupid" and not immigration, terrorism, energy...

[Arthur Dent]

I am not an economist, but I'll share my thoughts anyway.

One of the major factors driving consumption has been home equity loans. A slump in the housing market would help to dry up this source. A reduction in consumption would be bad for business and would certainly affect the labor market. On the other hand, I don't think high house prices are a good thing. Not only are current prices unsustainable, but shelter is one of the necessities of life, and I don't think the fact that it is becoming more and more expensive is a good thing.

With regard to China, they are not buying dollars for investment purposes. The reason is to control the exchange rate to boost Chinese exports and grow their economy. They are aware that it is not the highest yielding investment.

[TimeForGuinness]

In short...no.

[Radio_Bugtussle]

Keep in mind the fact that many of the reporters writing stories about this understand economics almost as well as cats and deer understand the concept of traffic.

[Cole Burns]

For you economists out there - what are your thoughts on the housing recession, the disastrous issues with subprime mortgages, and the weakening dollar? Will it lead to a recession?

It's seems like economists can't agree on what will happen, but most agree that a recession is at least a possibility. Even with help from the Fed things could remain ugly in the market for a while, I think that's pretty much understood, but whether or not that will spill over into the general economy... I don't know. The job market is apparently still strong, so I don't think we should start worrying about unemployment anytime soon, but I also think Americans are spending more than they can afford, and that consumption bubble is eventually going to burst. With the weaker dollar, foreign investors won't be satisfied with just buying up our dollar debt, they're going to want hard assets - I could see some old school US companies being bought out by the likes of China.

Anyway, most of this stuff is over my head. Outside of the investment market, things could remain just peachy, but I also have a feeling that the number one talking point for the upcoming election is going to be the "economy stupid" and not immigration, terrorism, energy...

This is one of the most fascinating observations to me. After 9-11 the market took a nose-dive (sure it was going down before then due to a minor recession, but the terror attacks stalled any correction). Since then the market has been churning back to life anchoring growth mostly in the home sector. But that has led to improvement and strength across the board. The last two years have shown the largest gains in the market since the boom of the nineties and was reaching all time highs daily (until the recent adjustment). Still, during this fiscal turn around, people just assumed that everything was bad...even when it wasn't. Unemployment is low, new housing has been way up (too far up, thus the correction), interest rates are still low after years of threats they would go back up. The only negative has been the weak dollar in int'l markets, due mainly to China and Europe attempting to devalue it for their own gains. But what does the media report? A ho-hum on the overall growth and doom-and-gloom when anything negative happens.

...smacks of media-bias to me.

[maddash]

For you economists out there - what are your thoughts on the housing recession, the disastrous issues with subprime mortgages, and the weakening dollar? Will it lead to a recession?

It's seems like economists can't agree on what will happen, but most agree that a recession is at least a possibility. Even with help from the Fed things could remain ugly in the market for a while, I think that's pretty much understood, but whether or not that will spill over into the general economy... I don't know. The job market is apparently still strong, so I don't think we should start worrying about unemployment anytime soon, but I also think Americans are spending more than they can afford, and that consumption bubble is eventually going to burst. With the weaker dollar, foreign investors won't be satisfied with just buying up our dollar debt, they're going to want hard assets - I could see some old school US companies being bought out by the likes of China.

Anyway, most of this stuff is over my head. Outside of the investment market, things could remain just peachy, but I also have a feeling that the number one talking point for the upcoming election is going to be the "economy stupid" and not immigration, terrorism, energy...

This is one of the most fascinating observations to me. After 9-11 the market took a nose-dive (sure it was going down before then due to a minor recession, but the terror attacks stalled any correction). Since then the market has been churning back to life anchoring growth mostly in the home sector. But that has led to improvement and strength across the board. The last two years have shown the largest gains in the market since the boom of the nineties and was reaching all time highs daily (until the recent adjustment). Still, during this fiscal turn around, people just assumed that everything was bad...even when it wasn't. Unemployment is low, new housing has been way up (too far up, thus the correction), interest rates are still low after years of threats they would go back up. The only negative has been the weak dollar in int'l markets, due mainly to China and Europe attempting to devalue it for their own gains. But what does the media report? A ho-hum on the overall growth and doom-and-gloom when anything negative happens.

...smacks of media-bias to me.

Well, post 9/11 you still had investors willing to put money into the market. Now you have a number of institutional investors and foreign banks heavily invested in mortgage-backed securities who are not so willing to keep money in the market. I'm sure you're heard of the problems with Bear Stearns, who has lost billions because of those securities that were back by subprime mortgages. Which is why the Fed has cut the lending rate to help get the market going again. But... if the funds that major investors and banks invest in aren't being backed by something stable (obviously subprime mortgages are not stable), why would they continue to pump money in like they did before?

But, a lot of this is over my head...

Still, it's not just the "media" being bearish, there are plenty of fund managers and CEO's that are saying the same thing. I guess those folks could just be pushing their bias agenda too, but it seems a little silly to just dismiss them.

[sighyoung]

I don't think it's media bias, but the nature of worrying about an economic shock after a long period of economic stability, low interest rates, and expansion.

For right now, the legitimate story is the worldwide credit squeeze, and whether central banks perform their crucial roles as lenders of last resort.

Right now, they seem able and willing to.

[Lazarus 3.5]

I am so tired of being a dumbass

[KyCardinalFan]

I am so tired of being a dumbass

Me too.

I was going to ask an ignorant question, which now seems to be dumb after reading these posts.

What does a recession mean to the average person? (Main Street, as the Wall Street-ers like to say)

As a consumer should I hold my money? Buy more? Is it a bad time to take a home equity loan? (We've got some energy-efficient home improvements to make) Should we save more? Invest more?

What does a recession mean to little ol' me?

[Arthur Dent]

What does a recession mean to the average person? (Main Street, as the Wall Street-ers like to say)

I think the biggest issue for most people is that recessions are bad for the job market. The chances of getting a raise decrease and the chances of losing your job go up. So, plan accordingly. Of course, these things vary a great deal depending on what kind of work you do.