It’s all over the news, the recession is over, even if the ordinary American can’t tell the difference. But the question is, can the recovery continue after the government stimulus is gone.
According to the AP:
Many economists predict economic activity won’t grow as much in the months ahead as the bracing impact of Obama’s $787 billion package of increased government spending and tax cuts fades.
The National Association for Business Economics thinks growth will slow to a 2.4 percent pace in the current October-December quarter. It expects a 2.5 percent growth rate in the first three months of next year, although other economists believe the pace will be closer to 1 percent.
And if this wasn’t bad enough, the AP continues:
Even with the third-quarter improvement, the economy isn’t out of the woods yet.
Federal Reserve Chairman Ben Bernanke and members of Obama’s economics team have warned that the nascent recovery won’t be robust enough to prevent the unemployment rate — now at a 26-year high of 9.8 percent — from rising into next year.
Economists say the jobless rate probably nudged up to 9.9 percent in October and will go as high as 10.5 percent around the middle of next year before declining gradually. The government is scheduled to release the October jobless rate report next week.
So the recovery is dependent on government spending that’s about to disappear. The jobless rate is likely to increase. Then there’s the gathering storm that’s been building in the background since the beginning of this year, due to hit in 2010:
According to Adam Levithin, one of the authors of creditslips.org (a blog by 7 academics, including one well-known Harvard Professor, Elizabeth Warren):
…this graph from Credit Suisse is the most sobering thing I’ve seen in a while. Mortgage_rate_resets It shows that most of the interest rate resets ahead aren’t subprime, but are instead Alt-A and option-ARMs…
Alt-A is the category of loans made to consumers with FICO scores just above the subprime threshold. Option ARMs give borrowers several payment options, including making a minimum payment that does not even cover the interest that accrued in the last month. This means it’s pretty easy for an option ARM to end up underwater, even in a market where prices are holding steady. If real estate prices are dropping, it is even more likely that an option ARM will end up upside down, which makes refinancing near impossible. The bulk of the Alt-A and option-ARM resets are coming in 2010-2011. A lot of things could change before then. But we might just be seeing the tip of the iceberg in the housing market.
Is the recession over, or is it just round 2? Do you think we’ve turned the corner?
