So, last week I watched a television show on HDNet where A. Gary Schilling, a reputable economist formerly with Merrill Lynch, said that the American economy is currently in a “deep recession”, which, he added, is the worst in the post-WWII era and will be more severe on consumers than any recession since the 1930’s.
Of course, recession hits different areas of the country differently, and it can be debated whether or not we are heading toward recession or are currently in a recession. However, national housing sales are down almost 35% and the median house price is down 12%. There are excess inventories of homes, overall, which does not bode well for housing prices. Based on economic indicators, unemployment is rising and the economy is slowing.
He predicts that many who lose their jobs will not be able to fall back on the equity of their homes. In fact, during this recession, at least a couple of million people will be forced away from their homes due to foreclosure, walk away, default, etc.
When the economy was last in what would be considered a “deep recession”, it was back in the mid-1970’s and I was approximately 10 years old or so. I was blissfully ignorant of what the economy held at that time. I did watch the news, but it seemed to be affecting “other people”. There weren’t any ‘gas lines’ in Karlstad, and no ‘Will Work For Food’ signs on the corner.
Most families were in the same situation. Sure, there were families who were wealthier and poorer, but the extremes in socioeconomic classes didn’t seem to be as evident to me as a 10 year old in Karlstad as they do to me today.
Many adults have never been in a “deep recession” – as an adult. If we are actually in one, I think it could be a shocking reality for some – and a hard reality for others.
What did Mr. Schilling advise to ride out the storm?
He said not to use your home as a “piggy bank”, as many already have. Due to the falling prices, even those who currently have a good amount of unused equity in their homes will feel the pinch. (Note – I said UNUSED equity.) He said to spend down your debt as best you can, save more, be cautious in spending, and to be “thrifty”.
Just another reason to wish to be 10 years old again.
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4 comments:
Things I remember about the "deep recession" of our youth -- indoor recess, where the girls learned to embroider and the boys played Rummy Royal. I also remember gas prices going over $1.00 per gallon, so you had to double the amount shown on the pump because they didn't have room for three digits!
If you want an idea of what your house is worth, you can check out zillow.com
It is not real accurate, but it can give you a general idea. According to that site, our house's value is down about 22% from its high (compared to your 12% stat).
We do actually have an equity line of credit, too, but usually carry no balance on it. We do currently have a few thousand on it due to some recent over-spending. Oh, how I envy those that can refrain from the consumption lifestyle...
An added benefit to your advice is that by keeping debt down, you don't become a slave to your job. Generally speaking, most Americans spend their work days making money for crap they already "own"; ie., houses, cars, and all the stuff they purchased with their credit cards. (I only wish I wasn't among that group.)
As far as the '70's "deep recession" is concerned, I remember walking eight miles to school every day because it was to cold for my dad to get the horse and buggy out.
Finally. Someone on this blog who writes something relevant. I am sick of that Dane guy talking about himself.
When do I get promoted to writer?
My nephew, Jason Johnson, said that he'll know that the recession has hit when he has to switch from Windsor Canadian to Ten High. Pretty funny, actually.
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