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NEWS - Twitter Report - Will the ‘Recovery’ Pass Us By?
October 13, 2009
Will the ‘Recovery’ Pass Us By?
President Barack Obama and Federal Reserve Chairman Bernanke each recently indicated that the recession is over. Is it?
Bernanke himself noted labor markets will remain “weak through 2010 because growth will be too anemic to create jobs.” Economist and San Francisco Federal Reserve Bank President Janet Yellen said the recovery will be “tepid and slow.”
Consumer spending accounts for 70% of our Gross Domestic Product (GDP). It’s critical for our economy. If the consumer’s not involved in any recovery to a large degree what kind of recovery will we experience?
Unemployment remains near the 26-year high mark of about 10%. If the past two recoveries are any indication, it could take a year or more before employers resume hiring. The nearly $1 trillion stimulus package was supposed to help the economy and create jobs, but so far only 10% of the stimulus money has worked its way into the economy.
Rising deficits and debt are creating a further uncertainty about our economy. Concerns about our fiscal policies will further pressure yields and the dollar. Bernanke also told Congress, “Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation. The Federal Reserve will not monetize the debt.”
A major factor in rising deficits is the increase in Medicare and Medicaid outlays. These are expected to rise with our aging population. Many plans for early or regularly scheduled retirement have been put on hold because a significant portion of wealth has been lost due to decreasing account and home values. Further complicating this is that we’ve not seen the bottom in residential real estate prices yet, although it appears to be easing slightly as of late and widespread consumer credit is fragile at best. Foreclosures and short sales accounted for 31% of total housing sales in the last 4 months while mortgages in default or past-due set records for July and August.
With the number of potentially tax-laden proposals under discussion in Washington, such as a climate bill and healthcare reform, it is no wonder many of us are nervous. Individual savings rates have jumped to nearly 6% because consumers are leery about their jobs, plus the possibility of increased taxes and higher inflation, are limiting spending and investing.
It’s probably going to take time for any recovery to take hold in a meaningful way. It may be many months before we see clarity on this. My suggestion: keep your accounts well diversified standing ready to buy, sell or hold as needed.
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