Why Does Economic Improvement Feel A Lot Like Economic Recession?
The recession is over…right? Last summer we came precariously close to having to admit a double dip recession was in the works, but thanks to a stronger third quarter we came back and narrowly escaped having it termed another recession. However, the economic improvement or “recovery” we have seen since the initial crash 2008 is not like any other recover we have seen in U.S. history. Previously, whenever the economy has slowed, it has always recovered and topped it’s previous high within two years. This time around, it took four full years. And still, no one feels safe in the economy…unemployment is still high, spending is still sluggish, and the demand for goods is not back up where it once was. Full recovery remains, elusive. A member of the Federal Reserve Board of Governors, Dan Tarullo described our current economy as “slogging through the mud.”
Joblessness Remains High SignalingThe Economy Has Not Yet Improved
In October unemployment climbed once again to the 9% level. Fewer people have jobs today, than were employed back in 2000 prior to the bursting of the tech bubble, even though 31 million more individuals have been added to our population. Current unemployment is hovering just below the peak during the recession back in 2009.
US Economy Can Be Termed “Debt Deflation”
While many are concerned about inflation, economists would argue that deflation is the real scare facing our economy. The housing market, for example, is an instance where deflation is wreaking havoc. Irvin Fisher, a Yale University Professor has coined the phrase “debt deflation”. In other words, debt has caused “the slowing of the economy, it has curbed the value of assets, curtailed lending, reduced employment, and has left businesses operating with excess capacity.” According to Fisher’s definition, the real issue facing the U.S. economy is the oppressing issue of the deficit.
As much as we are all hoping for an improving U.S. economy, many factors point to the opposite happening. In January we face a fiscal cliff where we will see an increase in taxes and a decrease in spending, which is likely to curtail any growth in the economy unless congress does something to intervene in the matter. Additionally, we have reached the capacity of our debt ceiling. Something must be done to either adjust spending, or adjust the debt ceiling, both of which will cause problems for the economy. If you combine troubles on the home front, with the contraction we are seeing in the global economy, it would be wise to prepare yourself for a long road of economic hardship ahead. For more information on how to position yourself to weather the storm, speak to a redhawk advisor near you.