From Recession to Depression?

Home Business® Magazine is predicting that the U.S. will move from a recession into a depression, in 2009 or 2010. It is worth noting that if the federal government had not poured trillions of dollars into the financial system and economy in late 2008, the U.S. would already have slipped into a depression.

From Recession to Depression?

Home Business® Magazine is predicting that the U.S. will move from a recession into a depression, in 2009 or 2010. It is worth noting that if the federal government had not poured trillions of dollars into the financial system and economy in late 2008, the U.S. would already have slipped into a depression.

The U.S. and world economies are huge, macroeconomic systems. The factors that make them function — or dysfunction — are impossible to comprehend. But here are some simple reasons why the U.S. economy will slip into a depression, or at least a long-term severe recession:

•    Structural Deficits: The U.S. annual deficit, already at $500 billion for the first 3 months of fiscal year 2009!, could end up at $2 trillion. This is an utterly staggering amount that will stay well above a trillion for years to come. The amount is unsustainable.

•    Huge National Debt: The grossly irresponsible fiscal policies of the U.S. over the last 25+ years (with the exception of 1995-2000) have accumulated a staggering $11 trillion in debt — and counting. The Bush administration alone piled on over half that amount. It would take the U.S. 7–10 years to pay it off, if we spent all annual revenue just on interest payments and debt retirement.

•    Looming Hyper-Inflation: The U.S. cannot print these trillions of dollars in bad debt without eventual uncontrollable inflation. Hyperinflation will cause interest payments on the national debt to rise logarithmically, eventually causing an economic collapse.

•    Continued Housing Crash: The U.S. housing market, that was responsible for so much of the phony wealth created during 2000–2008, will continue to contract in 2009 and beyond. The average home price that buyers can afford will continue to plummet, and bring housing prices down with it.

•    More Job losses: Unemployment will rise and companies will shed more jobs in 2009. This creates negative “feedback loops” back into the macro economy. Worse, a good percentage of the jobs shed are in tax value-adding manufacturing and high-end services. Many jobs projected to grow in 2009, on the other hand, are in health care, government, and education.

•    Hopeless Political Gridlock: It’s important to realize that the U.S. did not get into a recession from circumstances beyond its control. A dysfunctional political system and culture, focused on reckless deregulation and short-term greed, created the financial mess. The gridlock among political leaders may be so systemic that it will be impossible to enact laws and regulations for any long-term solution.

There are many more factors that will push the economy further down in 2009. Prepare for the worst by shoring up your finances with a home-based business. HBM

Published in a previous issue of Home Business Magazine.