Looking At The Economy As A Whole
We’ve all heard horror stories about the Great Depression and while economic rises and dips are constantly occurring, we look to these patterns hoping for the best but preparing for the worst. We are currently in an economic slump that is credited to three main factors: A prolonged and taxing war in the middle-east; instability of oil prices, and a recent fallout in the housing market (credited to the sub prime mortgage industry). So the question then becomes, what can be done to pull us out of the slump?
In a recent blog post at Debt Free, this question is answered by none other than the Federal Government themselves:
According to Fed Governor Frederic Mishkin and the head of the San Francisco Fed President Janet Yellen both seem to have a pessimistic outlook on our immediate economic future. Mr. Mishkin stated “consumer and business spending also could be damped as a consequence of the recent financial turmoil” The timing of such pessimism, directly before the traditionally busy Q4 retail season, might give consumers pause before they head out to max out their credit cards yet again. Keeping Americans from going even deeper into debt would be a good thing, but, in the short term could give rise to all manner of economic problems, especially when combined with the troubles faced by the lending industry of late.
Mishkin and Yellen may be basing their opinions on the Fed report from July indicating that consumer credit slowed substantially over the same period a month before. Overall consumer credit showed a 5.9% growth rate in June, but that plunged to a 3.7% clip for the month of July. The 37% decline in month over month growth in consumer indebtedness may actually portend increased health in consumer spending patterns, for as sure as the debt financed spending has driven the economy to new heights, it hasn’t helped many Americans personal financial picture. Even more ominous for many Americans personally, the revolving (credit cards, store accounts) sector of the consumer credit report indicated substantial growth (6.6%), while non revolving credit (HELOCs, mortgages, car loans) showed much slower growth, at 1.9%.
The blog goes on to say that it seems too many feel leverage is the name of the game. Sadly, the majority are leveraging presents, travel, and new goods with which to fill up their homes. This is leverage to indebt, rather than leverage to enrich, a much more appropriate use of the most powerful of financial and business principles.
Within the Fed, there remain those who are hopeful on the direction of economy as a whole, however. The trend among annalists is that there is no need to worry about a repeat performance of this recession becoming a depression. The informative blog can be read in its entirety here.
