Assuming the Worst

Economic Downturn

In recent months there has been talk of an economic recession amidst reports of rising prices of crude oil and gasoline, the soar of food prices, falling home values, the decline of the dollar, and other sectors of the financial market. Despite all of these reports and showings, there is still hope to survive this economic downturn.
Many consumers and analysts are worried about preparing for the coming recession, when they should be trying to prevent it. Economist Chris Farrel believes that analysts and consumers alike are talking the economy into a recession. He reports:
“There's no doubt the discussion about the economy has taken a dark turn lately… Nevertheless, a good number of economists still believe the glass remains half full. The federal government's fiscal stimulus is coming. The Federal Reserve Board is aggressively easing interest rates. Exports are flourishing. The agricultural sector is booming. Inventories are well-contained. While the 7% of inflation-adjusted gross domestic product made up by housing and autos declined by nearly 12% over the past year, the segments of the economy that make up the remaining 93% of real gross domestic product rose at a healthy 3.8%.”

There has been only negative news. James W. Paulson, chief investment officer at Wells Capital Management said, “Sensitivity to signs of economic weakness have been magnified while evidence to the contrary is often ignored.” Of course, there are good reasons for economic pessimism today. Prices in the residential housing market are down sharply and foreclosures are skyrocketing. The job market is deteriorating, and the stock market is dropping steadily. Oil prices are at all-time highs and gas is going up with it. Each of these trends affects real people: The homeowner that signed a toxic mortgage now watching the bank foreclose on the house, a worker getting laid off because of Chinese competition, a family forced into credit problems to pay the ridiculous gasoline, heating oil, and food bill. Despite all this economic hardship, we all have to look for solution to solving these problems.
Analyst and column writer for Business Week, Ben Steverman, wrote five helpful tip for whatever 2008 will bring: don't get rattled by the uncertainty, if you trade stocks, be careful how you do it, diversify, and go international, Defensive moves might help you relax, but they'll probably hurt your returns, and make sure you have enough cash. If tips like these were followed by consumers and all stock-traders, instead of forcing themselves into paranoia, we will be able to come out of this economic downturn with less scars than we have to.
Even professionals who are convinced that we are inevitably end up in a recession or already are in one are skeptical about how bad it will be. Jens Hatzius, senior economist at Golman Sachs, said, “The key question is the depth and length of the recession. I continue to think it will be relatively mild, much closer to the 1990-91 and 2001 downturns than the 1973-75 recession or the 1980-82 double dip.” If it is considered to be a “mild” recession then maybe it can be avoided all together. Henry Paulson, the U.S. Treasury Secretary, reported, “housing correction, high energy prices, and capital market turmoil have combined to weigh on near-term growth," and the American government "clearly needed to act" as it did in passing a $150 billion economic stimulus package last week. With all this prevention activity the economy should be set on a course to slow the downturn.
Economic downturn is inevitable and everyone should prepare for it. This is no reason, though, to not do what we can to keep ourselves financially stable, as well as, to help the economy. A recession is not inevitable and with other national markets flourishing, this is a prime opportunity for American investors to cash in on overseas markets. That prosperity could be then shared in our hurting economy and market as an investment to boost financial sectors. The economy will always bounce back, but how far of a plunge are we willing to take for it? We decide.