While it pains me to say it, I fear our nation is facing a long and arduous journey when it comes to recovering from the current economic crisis. A slow, and U-shaped recovery, seems to be the unfortunate answer to the looming, if not current recession. I base this statement on four separate, but linked factors that are intertwining to create a snowball effect and essentially prolong the recovery process. These factors include widespread consumer fear, slowing sector growth, job loss, and crippled global economies, which will all combine to create a U, verses a V-shaped recovery.
Fear is probably the widest reaching aspect in protracting the current economic downturn. If consumers are afraid to spend or in many cases nowadays unable to spend, all facets of economic growth are stunted. In short, if people aren’t spending, the economy slows, if the economy slows, jobs are lost, if jobs are lost people can’t spend, and the cycle continues.
SLOWING SECTOR GROWTH
While this mess initially started in the financial sector, the growing restrictions on the credit market have begun to impede almost all other sectors, including, what only months ago seemed to be an impenetrable energy sector. Segments across the board have been hit, from utilities to technology, services to industrial goods. About the only area that has held its own are consumer goods, due in large part to the fact that society still needs to eat. This broad slowdown is now taking its toll on the job market, as illustrated by a rise in jobless claims.
Unemployment continues to rise and will likely play the most unfortunate factor in a prolonged recovery. Consumers will be wary to go out and spend without assurance of a steady paycheck and job security. Continued job loss will stymie consumer spending and hamper consumer confidence, which would normally act as the catalyst in jumpstarting the economy.
Foreign markets, which in past recessions or times of economic sluggishness have provided shelter for investors, now have problems of their own. Crippled markets in Europe and Asia have left many US investors shaking their heads and searching helplessly for new markets in which to invest. A global downturn also adds momentum to the rolling snowball effect on markets at home, as foreign nations stop investing in the US to focus on their own economic and financial difficulties.
Overall, I am confident that the US will pull through this current downturn and learn some valuable lessons in the process. While global stock markets thrash wildly, convulsing in huge four, five, and even six-hundred point intraday swings, it will give many people time to reflect on what brought our nation here in the first place. It is unfortunate that so many must suffer to learn ideals as simple as saving for a rainy day, not overextending oneself financially, and other basic monetary fundamentals, but in the long run this will make our nation stronger as a whole, more stable, and more economically independent.
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