You hear a lot of people throwing around the word "recession" these days. Since I'm an accountant, and studied economics in college, something's been telling me that this is not the proper description of what we are facing. Production is decreasing. Prices are going up. The market is actually holding fairly steady, as is unemployment. With that in mind, here's a definition of recession:
Recession: If there are two consecutive quarters of decline in economic activity as measured by a decrease in GDP, the economy is said to be in a recession. During a recession, prices fall, consumers don't buy as many products (especially high-priced items), and businesses begin to fail. A recession has severe consequences for the economy, highlighted by high unemployment and an overall drop in living standards. When the fear of a recession begins to surface, the federal government expends considerable effort to change the course of activities. Those activities will be discussed later.
Have you seen a price drop on anything? Nope. Real estate dropped for a while, but ever so slightly and actually rebounded! No. What the US is feeling is not a recession. This is what we're experiencing:
Stagflation: The term stagflation is sometimes used to describe a situation in which there is slow to zero growth in real output, high inflation exists, and unemployment is higher than normal. This situation usually begins with rising prices at times when production is declining. Because of declining production, unemployment also increases. All three of these factors combined cause stagflation—stagnation in production and employment together with increasing inflation.
At this point, if we can manage to get the OPEC to increase production, that will in turn drive down fuel prices. When fuel drops in price, everything can drop in price which would get everything back on track again. That was the purpose of Bush visiting the Saudis today. No one can tell me that the Saudis are our ally as they refuse to accommodate their largest customer.
But I digress, recession is a word that most people can identify with. Recession sounds bad. A drop. Recession of the economy, when we really aren't in one, by economic definition. This is more of a correction, and when this finally stabilizes (I don't see anything stabilizing until we can regulate the oil commodity market that is controlled by speculators) then the economy will take off again.
Of course, in an election year, there are other factors. Uncertainty. Businesses are afraid of the threat of a democrat in office. Democrats love to penalize corporations. Guess who employs people? Corporations. Penalize the employers and jobs dry up. But with a republican in office, unemployment will continue to decline as it HAS BEEN under the Bush administration. Restaurants can't even find kids to wait tables because the pay isn't worth their while. Regardless, the markets will dip at the end of 2008 certainly, and may continue well into 2009. With a democrat, probably into 2010.
So, in conclusion, stop whining about what you don't know about, and DO something to stimulate the economy yourself. Visit a local restaurant and have a meal. Drop some bucks here and there. Get a fuel efficient car to stretch those gasoline dollars. I have a feeling that this oil crunch will help usher in a new era of responsible automobile owners who are looking for 25+ miles to the gallon and doing away with the wasteful trucks and SUV craze. Since fuel caused this problem, learning to DEAL with it will solve it.
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