Since World War II, the U.S. has recovered relatively quickly from recessions. However, this time, it appears this recession will be much worse because consumers are the main cause of the economic decline.
In From Bubble to Depression in The Wall Street Journal authors Steven Gjerstand and Vernon L. Smith hypothesize the difference is the cause. They conclude that this recession, like the Great Depression, was due a financial crisis that originated from consumer debt, which quickly transmitted in to the financial system. Recoveries from such an economic downturn tend to be long and drawn out.
The Great Recession: A Downturn Sized Up by Justin Lahart of The Walls Street Journal offers that the cause of the recession, a collapse of housing and credit, has made Fed interest cuts less effective and eliminated more consumer wealth than previous recession. Thus, consumers are saving much more than previously to make up for the loss of wealth, which will likely slow down this economic recovery.
If the conclusions from these articles are correct, then the recovery from this recession will likely be long and drawn out, and making it harder to achieve our personal finance goals.
For more on Reflections and Musings, check back every Saturday for a new segment.
This is not financial advice. Please consult a professional advisor.
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1 comment:
Historically that has been correct. What may be different this time is that the world is not entirely in sync on consumer spending - yes it is down in many countries but in some places (e.g. China, India) it is actually rising. It's possible that some countries may come out of the recession earlier than others.
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