It's everywhere. Talk of recession. It increases every day. And with it, the fear of it increases. The fear it creates escalates the probability of it becoming a reality. It's a self-fulfilling prophecy.
The more we hear it, the more afraid we become. So, we tighten up our own spending out of that fear. We don't buy those convenience items. We don't buy that new television or take that family vacation. The ripple affect of that creates that which we feared to begin with! And, all out of fear created by a repetition of a message.
Before you think I'm totally nuts, I do understand that there are problems in our economy. We have the sub-prime mortgage crisis to deal with and other factors in our economy overall that are affecting a large number of Americans. Those issues must be dealt with however, the constant repetitive talk of recession is having an affect on parts of the population that were not affected by those things. And, because of that, those people are curbing their spending.
People who are affected by the sub-prime mortgage crisis don't have money to spend. That is a reality. The housing market had its problems. The sub-prime problem should be and would have been dealt with in some way and the housing market problem would have corrected itself over time. Now we are making things worse and adding more people in crisis because of the affects of a lack of consumer spending. Mostly created out of the fear of a recession.
A lot of a person's behavior stems from what they believe about the state of things in the world they live in. When we hear a daily constant message about a recession, we begin to believe it. Then it becomes fact because of the layoffs that result from no one buying the products on the shelves. The facts are then added to the hype and the snowball keeps rolling, building on itself. Add some time and you end up with exactly what was being discussed and it was, in large part created out of air. Or should I say air<i>waves.</i>
It's crazymaking and it's infuriating!
rate
email
print
link to this page
Comments: 31
The real key here is to have faith in the nation, in it's people and industry and to know that even a recession is not a thing to fear. :O)
If you see my widget it means you got a "10" :O)
I'm the only person I know that has actually stopped spending anything I don't have to spend and that's because our goal is to pay off the credit cards this year so that we can start thinking about buying a better house.
I am feeling pretty smug about our 30-year, fixed-rate mortgage lately. We could have taken one of those ARMs and paid less the first few years. I'm glad we didn't fall for that one.
Of course it is very expensive and causes terrible suffering. It lowers everyone's standard of living. It is also totally unnecessary. If we change to a different form of money (one never before used anywhere) we can eliminate such things, increase production by about 25% to start, end inflation (and deflation), have truely free markets, all property private, no taxes, no government regulation of business, no poverty, and less polution.
I know it sounds impossible but all those things above are a result of the kind of money we use. I have written a novel (easier to read than economics texts) which explains what's wrong with our money, how we can fix it, and why the new money will solve a host of problems. Its title is "Invisible Hand" and I have published it here on Gather. Check out the comments before you read if you think I am faking anything.
It's also available at http://www.unc.edu/~mason/hand.html if you'd rather read it without the Gather ads.
As for us, we haven't stopped spending, but I'm sure a lot of younger folks have. When the kids were young, I always had my ear to things like this so I could prepare for the lean times.
Here is a story that somewhat explains why this is happening.
About 3 years ago my sister qualified for a sub prime home mortgage. Now my understanding with a subprime loan is that there are less qualification and you dont need perfect credit to be able to get one. But the interest you pay is higher and you dont get a fixed rate but variable rate.
So in part her loan payment depended on the prime rate.
She had a good job. An Occupational therapist. Her income was good. But then the feds started raising the prime rate. So her payment went up.
The other part is that she was a poor credit manager. When she got the house she started getting offers for various credit cards. She accepted and used them all
So here she is...same income level...big credit card balances and a larger home payment.
Needless to say she lost her house and defaulted on her credit card...Not all of them but mostly the department store ones.
The bank took the house but because she was in Michigan and their economy is so depressed the bank had a hard time selling the house and when they did it was at a significant loss.
So now she is living in an apartment battling debt collectors.
So it is a mutual thing why this is happening.
Andrea- unfortunately, those with poor money management skills are going to react the way they do whether things are good or bad with the economy. They aren't the people I'm thinking of here. The ones I'm talking about are those who may have the cash to spend but, aren't doing so because of the fear created by the repetitive message about a recession.
Larry- I'll be sure to take a look at your article.
Marliee- oh, so true. I won't be seeing any of the stimulus package but, I'd spend it if I did!
Rubicon- I know what you mean about consumer debt. I hope I didn't give the impression that I was advocating that folks be increasing their debt to stave off a recession.
Ina- I haven't stopped spending either. I'm trying to do my part! :D
Lori- Your story outlines the problem with the sub-prime mortgages and the havoc it has created. What I'm talking about is adding even more people into crisis mode through lost jobs, above and beyond those who are already affected by that whole thing.
Sandy- I hope I didn't come off as suggesting that people ought to be encouraged to spend money they can't afford. I guess I was talking about the fear that is being created for those who can afford to spend some money. Those who won't be because they are too apprehensive about the future. A future that is being helped along in a negative way through the repetition of a negative message. Unfortunately, the horse is out of the barn on this one and a lot of damage already done.
It boils down to ~
Don't spend money you don't have.
Don't buy things you don't need.
Reuse what you can and try to be a smart consumer.
And always take with a HUGE grain of salt anyone who uses guilt or fear tactics to make you "toe the line".
As a side note, people need to quit assuming that because they "qualify" for something, that it means they can "afford" it. Plan ahead, and manage your finances.
If I were still working and saw jobs going away in my area, I would slow down or stop frivolous spending and put the money in the bank against a possible layoff.
My point is that people don't curtail spending because of some rumor of recession, but rather when the recession factors begin impacting their real lives.
No kidding. We qualified for twice as much house as we knew we could afford. If we'd bought what they told us we could buy, we'd have been foreclosed on by now. There have been times when paying this mortgage was tough.
I blame the lenders for allowing people to rack up debt they cannot afford, but I also blame the consumers.
A little self control would go a long way. When's the last time you heard someone say they were saving up to buy something?????
As to a recession, I do believe it's here, but as Dan said way up top there, there are always cycles. We just hope to survive the downturns and be ready for the upturn.
Excellent article, Lisa, and congrats for being on the front page!
(And where will the gov't get this money? Borrow it from China?????)
Donna- Sage advice. It would be nice if people would heed it.
John- you are so right. This is something I showed my daughter along the way. When I would get 20 "offers" per week for prequalified credit cards, etc., I'd show them to her and talk to her about the dangers of this. Now, at 19, she has one credit card to build some credit and she uses it very little and pays the balance every month. Since she got that card, she gets offers in the mail all the time for other cards. I'm glad she knows to steer clear of them.
I'm making a lot more money that I was, 15 years ago when I bought my home. I could have sold this house and gotten into a much larger home. I could even have afforded to do so. I chose not to. I just saw no reason for it.
Carolyn- you may be right to a degree however, what I'm seeing is the chicken before the egg, as it were. One of my clients is a manufacturing operation in paper goods. They manufacture convenience items. Not spendy items but certainly not what you would consider an absolute necessity. When the fear of recession starts to take hold, many folks pull back so much in their spending, too afraid to move that they don't spend on anything. That halts the economy and those manufacturing firms aren't producing enough to keep as many people working. So, they lay those people off and it affects the next tier of consumers in a deeper way.
Consider the family who may have set some money aside to take a vacation. Suddenly there is all this talk of a recession and they become afraid to follow through with their plan because they don't know what is going to happen. So, they decide to leave the money where it is and opt out of their vacation. That decision, made out of fear, affects the people in the areas where they might have gone for their vacation.
Dan- of course we rely on consumer spending. Why would we be manufacturing anything if no one is going to buy it? What ends up happening out of this fear when it gets to a larger scale is that those in the position of purchasing capital equipment pull back, also. Instead of purchasing that new machine, thus employing more people in another area of their own town or country, they jury rig the machine a bit more and don't make that purchase. We need to have people spending money on the products we produce.
Nancy- you are right about consumer debt. It's been too easy to get credit and for that, the lenders should be held responsible. They made billions in profit on what ended up killing the lives of many Americans.
I also believe there isn't enough basic education about debt and credit and money management in general. If I had things my way, I'd make "Life" part of the curriculum in all schools in the country starting in grade school, with age appropriate classes throughout. Once you get to high school you have "Life 101, 102, 103 & 104" with real life situations to deal with in those classes. You'd learn how to make decisions along the way so when you get out, you have the basics with which to step out into the world.
Thanks for the congrats! I didn't even get to see it as I was at work all day. Nice to see you here!
Ron- I remember that, too. And then I lived through it and the effects of 9/11. No one was buying anything for several years. It affected our business dramatically.
Kevin- I'm amazed at how many people let the treasury dept be their financial planner. I talked to one of my staff members about this the other day. She gets over $1,000 per year back from the feds. I asked her why she was paying in too much instead of learning to manage her money and saving that $1,000 per year on her own? "It's easier." Amazing. Now, she's in the process of setting up a savings account and will have automatic transfers of the same amount of money she was loaning to the government, interest free over the past several years.
Hi Kris! I guess I must have misheard what the idea was about the stimulus package. I understood that only families with an income less than $100k would be getting anything. Either way, I don't like the idea.
It's a bribe.
"Here's $800 bucks. Now look the other way while I give millions to my cronies." Please note that it comes in an election year so that poor people will say, "Let's vote for those nice Republicans. They gave us that money for the new TV."
We hear the debate of 'recession or not' because it makes for compelling news stories, and interesting discussions.
But, the reality is that - recession or not - if you lose your job, things will be lean. If you have a good job, you'll probably be fine. The lesson should be to keep your resume current, and keep your options open.