We are going into a serious recession.

[goldbond]

For those of you not keeping up with economic news, the US is in the progressing into a substantial recession. Economists in the IMF, current and former, as well as private sector forecasters are giving warnings of dollar collaspe and eventually shortages in some essential goods (with serious inflation) as well as serious deflation of high dollar assets like homes, land and commercial property. Many people have already lost their jobs, and many more will be losing their jobs. Some of these people will be people who visit this forum.

In the next 6 months - 1 year:

1.) Stop spending your money on stupid crap. Eating out all the time, whatever.

2.) Learn how to shop wisely. This is regarding essential goods AKA food, clothes.

3.) Try to keep, at a mimimum 1 month's living expenses in the bank. 3-6 month's is ideal.

4.) Do not buy a big ticket item (cars, hardcore computers) for at least a year, then test the waters on your local job market and local economy for job stability. You will also be pleasantly surprised at the end... with a generous drop in prices for cars and such.

Of course, this advice especially applies to forum go'ers not living with their parents, especially forum go'ers who are heads of their households and those working retail jobs and other jobs that are likely to be lost this years. Be brave (and smart), peace out.

[Mindflayer]

its been a long time coming (2003....)

[Quigt]

I really hate it when my parents go and get a lease'd-out brand new car, and a hot tub in the same month. Honestly, it brings my piss to a boil. But it's more of a psychological issue, I think. People don't want to have to tell themselves that they're part of the lower/middle class, so they go out and buy things like cars, hot tubs, etc. to make themselves feel like part of the upper class. Because for some people, that kind of security equals happiness.

I dunno. I saved all the money I earned at my job before it burned down, and I rarely spend it. I like to think I'm doing my part

[Kyzarius]

The wise consumer does all those things already

and actually a recession is created when people STOP buying things, lack of consumer confidence (which is already happening!) creates a lull in purchasing...product prices crash, company revenue dwindles then people start to lose jobs...

[Raargant]

My AAPL (Apple) stock has dropped like 20% today....

:(

[Guest emp_newb]

my P&G stock is on its 20 year rise

['tarako]

'now is a time to invest in stock. or maybe in a year. idk. being extremely poor this doesnt really bother me. people will always need maintenace and construction stuff done cheaply and we know how to shop. lol. yes. I go to miami. yes. i thank the government for the financial aid. though im curious. what makes the dollar worth more or less? why is the euro worth so much? is it because other countries formed together for it?

[Mindflayer]

The english pound is nearly twice that of the US dollar.. Bush raised interest rates which is helping the dollar to gain back some standing in international markets, as investers will have increased returns.

[Calron]

The english pound is nearly twice that of the US dollar.. Bush raised interest rates which is helping the dollar to gain back some standing in international markets' date=' as investers will have increased returns.[/quote']

Last I checked, the president isn't in charge of interest rates.

In response to tarako and others, economics is a really interesting subject. If any of you have the time, I would recommend taking a course in it just for general knowledge. I only ever took one econ course and it was probably the most practical course I ever took. Almost every topic in it makes you go "Oh, so thats how that works." It answers all the questions you've been wondering about for so long plus a lot more.

[Aulian]

Last I checked, the president isn't in charge of interest rates.

In response to tarako and others, economics is a really interesting subject. If any of you have the time, I would recommend taking a course in it just for general knowledge. I only ever took one econ course and it was probably the most practical course I ever took. Almost every topic in it makes you go "Oh, so thats how that works." It answers all the questions you've been wondering about for so long plus a lot more.

No that would have to be the dude incharge of the federal bank...

RE: 'Tarako

The strength of a currency is based off many things; import and export volume and value, job stability, the size of the economic region, natural resources (export possibilities) and so on.

The reason the Euro is so strong because it consists of a conglomeration of countries that have now banded together to increase import/export possibilities and also reduce the cost of other economic activities. Also the fact that they now operate on a 'open border' policy means there is increased job security becaues you can just cross the boarder to find work without needing a visa. (I love being an irish citizen )

As Kyzarius also said, consumer spending and confidence plays a large part on affecting interest rates, currency strength and inflation.

If demand decreases and there is an excess in supply there will be a surplus, meaning people will have to start selling at cheaper prices, making less and less money until eventually (worse case) they are forced to shutdown/bankrupt.

If demand increases and supply cannot keep up there will be a shortage and prices will start to rise again until they reach equilibrium. If this effects enough goods, or more importantly the 'basket of goods' that effects the CPI of the area then inflation will increase and prices of more staple goods will increase aka, milk/bread.

Ah hope that helps a little.

Economics papers for the win!

-A

[Evangelion]

Okay, I'm calling bull****.

Do you know why, when it snows, the weather man tells people to go out and stock up on milk, toilet paper, and bread? Because the panic of not being able to get out of their houses for days scares people into doing so, providing a great boon for grocery/department stores, which in turn, sponsor the weather man's TV station, which in turn, allows the weather man to keep his job.

What is the purpose of this analogy?

The threat of a recession is very, very real. The United States economy is in a very turbulent period right now. And you know what? It is the advertisement of this threat, and the panic that it will cause, that will force us to capsize, and spin backwards in time about 79 years. This morning, the Dow Jones went down 200 points. By the end of the day, it had regained those 200 points, and gotten 300 more. Why? Because people learn from their mistakes, and financial advisers are telling their clients to stay in the market. However, you want to know what's going to send us into a true recession, if not another Great Depression? Bull**** advice like:

1) Put all your money in the bank, so you can live out the next year.

2) Don't make big investments like cars and houses.

3) Stop spending money.

Consumers, and more importantly the all-important capital that they carry, are what keeps this and every market afloat. If everybody went home on Friday and put their paycheck in a little brown bag under their mattress, and never spent any money, then we would live in a perpetual recession. It is the circulation of currency that keeps our economy alive. By telling people to stop this circulation with some conceited notion that they're going to preserve their own self-interest, you are essentially telling them to go f*ck themselves over, with the threat that they're already f*cked.

And let me explain something else to you. Even if this country were to hit rock bottom, and tomorrow the dollar was only worth twenty-five cents, do you know what would happen? Every other country in the world, at least those not on the state sponsor terror list, would donate millions, even billions of US dollars worth of their own capital. Why? Because by keeping our economy afloat, they are keeping their own economy afloat. Why don't you think China has overthrown the US as lead superpower yet? Because our economies are so intertwined, that any damage they cause to us will be instantly and almost equally reflected on themselves.

So, in conclusion, do not stop spending your money. Do not get greedy and sell your stocks under the mistaken notion that tomorrow they're not going to be worth a dime. Do not hoard, and do not alter your daily spending (unless you are already incapable of financial management, as most Americans are - but that's another topic).

It is the panic and the fear of recession that causes it to become a reality. Do not give in to that panic, and everything will be just fine.

[Twinblades713]

It's a self-fulfilling prophecy. Large scale.

Agreed on every one of those points.

[Chayesh]

Kyzarius is right. Recession occurs when consumer confidence is low (aka when they stop buying non-essentials). Recession is caused numerous factors which can include stagnant real estate markets, rising interest rates, and (gasp) taxes. Anyone who thinks that more taxes makes the economy work better is a buffoon.

The Chairman of the Federal Reserve controls one interest rate only: the Prime Rate. This is the rate which banks pay to borrow cash from the Federal REserve and typically the rate at which corporations borrow money for capital investment. Lower Prime is better for the economy. Many things trend with lowering the Prime, including lower mortgage rates (though 30-yr mortgage rates are more directly tied to the yield on the 10-yr note), increased investment, and higher consumer confidence.

BTW, today the Fed lowered prime. Basically the only thing better than Lowering Prime is Optimus Prime. Or prime rib. MMMMmmm. Think I'll go out to eat and help save the economy.

[Aulian]

Thanks Chay, I could of gone on with NZ economics but I dont think that would of helped much here, so you finished that off nicely.

And Bali is right. Spending money stops recession, keeps prices down and things moving.

A run on a bank only occurs when people get scared and take all the money out and kill the bank. The same is with the economy.

Take all the money out and you screw yourselves. Money makes money, money keeps jobs that makes money to spend money.

[samag08]

Well I am older than most of you here. Have the financial pedigrees. Had owned a business for over a decade. I believe I have a pretty good grasp on the current situation, largely in part to obsession over money(father was a C.P.A.) and experience.

Do I predict a recession coming? - NO.

Why? - The U.S. economy has been growing at an AMAZING rate over the past few years. Much like the real estate burst and tech burst of 2000-2001, the U.S. gets a bit carried away and ends up going overboard. If you look at, for example the P/E ratios of many of the U.S.' largest companies they are at near historic lows(which is good!). I believe that most folks are undereducated and led by the hype shoveled to them. All the talk of "The Morgage Crisis"......Crap.....NORMAL fixed rate mortgages are doing just fine. Again the overindulgence of our country led to too many lenders giving money to people who should NEVER been given the opportunity to shoot themselves in the foot to begin with.

I believe this coming year is a GREAT opportunity to invest for younger investors. Use the method of dollar cost averaging(invest say $50.00/week, every week, religiously.) This way when there are tumbles in the market, the mutual funds and stocks that you did at least a few hours of homework on(what are their competitors market shares? Are they unique? Patents? earnings growth for next 3-5 years? P/E ratio comps.) on are really at bargain prices. Because they are solid funds and companies. When the stock market swells(like it has for a LONG time now compared to historical averages) you buy less because things are pricey. This method alone makes a huge difference in your total risk level and potential earnings.

Let me compliment this thread for bringing some light on finance to all of the youth around here. There really needs to be more training in personal finance(I believe a MANDATORY high school class subject is reasonable)

Now for some sound advice from one of THE BEST financial counselors on THE PLANET, Dave Ramsey. He is simplistic and straightforeward enough for the general population to follow and do VERY well!

7 "Baby" Steps:

1.$1000.00 emergency fund - this is a small seed to protect you from Murphy while you complete the following steps.

2.Debt Snowball - Pay off all of your consumer debt(cards, cars, accounts). List ALL of your debt except your house from smallest amount owed to largest. Pay the minimum on all of it and really hammer down on the smallest. You will knock one off and then apply that much more to the next one up the line, methodically working your way out of debt. Which is ultimately the best place for you. No multimillionaire will ever tell you they got rich by using credit cards...period.

3. Finish the emergency fund - 3-6 months of expenses is a FAIR amount to have socked away in a money market account just for a rainy day. This is there for when the engine blows or your leg is broken, etc.

4. 15% of your income invested into retirement accounts - a good rule of thumb since 10% no longer is enough due to longer life expectancies. Do a GREAT deal of homework on selecting your investment vehicles here.

5. Save for the kiddies college- Simply put, a tax deduction for the parents and tax free growth for the kids. The maximum is $2000.00 per year into an ESA account(the most flexible as far as controlling your investments and my personal favorite.). $2000.00 per year times 18 years is a total of $36000.00 but at a 12% rate of return for example that would be $126,000 TAX FREE so long as your child uses it for education. Ofcourse that is just an example and your work or lack of in choosing and maintaining the account will affect the outcome.

6. Finally pay off the mortgage - Well now you have roughly 3-6 months of living expenses cash in a safe place(away from the pizza man). No consumer debt, are not going to be eating Alpo in retirement, and are certain the kids will not be living in your basement(hopefully!). You can get rid of the biggest payment most people have. Their house. All extra money(bonuses included) above your monthly allocated spending plan(a budget) go on the house. This reduces interest and heavily knocks down principal at the same time. Only question is, what are you going to do with that large amount of cash you were giving to the lender once the morgage is burned and the grass is really yours?

7. Invest, Invest, Invest.

Do these steps in order, without skipping around and it nearly a foolproof manner in which to live an independant. gratifying life in personal finance.

Sorry for the rant, but this is just a forte of mine here. If any of you have any questions or need help/advice as far as finance goes, feel free to pm me aswell. I was blessed enough to learn these things and live a good life and I feel it is my Christian responsibility to help others learn aswell.

Matt~

[Warmongrel]

stocks go up, stocks go down. Yeah, yesterday was a BAD day in the stock market, life goes on.

[Calron]

The Chairman of the Federal Reserve controls one interest rate only: the Prime Rate. This is the rate which banks pay to borrow cash from the Federal REserve and typically the rate at which corporations borrow money for capital investment. Lower Prime is better for the economy. Many things trend with lowering the Prime' date=' including lower mortgage rates (though 30-yr mortgage rates are more directly tied to the yield on the 10-yr note), increased investment, and higher consumer confidence.[/quote']

The Fed also controls the federal funds rate and the overnight rate. It also controls the reserve ratio (though not technically an interest rate). Federal funds rate is the rate at which banks lend money to each other. Overnight rate is the rate at which the Fed lends money to banks. Reserve ratio is the percentage of checkable deposits a bank must have physically available at a time. (The rest are used to create loans, so this is a way of influences the amount of money in the market)

Typically, the Fed has three ways of influencing the economy. Open market operations (this is basically buying/selling government bonds to decrease/increase the amount of money on the market), altering the discount rate, and altering the reserve ratio. All three of these are ways of increasing/decreasing the amount of money available.

The Fed uses either easy monetary policy or tight monetary policy a change has a ripple effect:

1) Interest rate goes up

2) Investment Demand shifts right/goes up

3) Aggregate Demand shifts right/goes up

Or, of course, the opposite of those three depending on easy/tight policy. Easy monetary policy is to promote growth (which inherently causes some inflation. This is what the Fed is doing now to try and blunt a recession.), tight monetary policy is to lower the inflation rate.

[Goru]

we are already there in New Zealand, house prices have tripled in the last two years, now they reckon its alot cheaper to rent for your whole life than to buy a house.

[Ex-D&Der]

We are probably going to have a recession because of the losses in the financial sector due to the subprime debacle. Basically banks developed a way of packaging loans and selling them to investors. So instead of making money by receiving interest for the loans, they made fees when they issued new loans. The problem is they were no longer responsible for whether the loans were paid off, and they only made money when they issued new loans. So they made a lot of bad loans. This is why McMansions have been popping up all over the place, home prices have skyrocketed, and people who would never speculate in stocks were flipping mortgages with no money down thinking that real estate was a sure thing. Sooner or later this had to end, and when people started defaulting on their mortgages, because the mortgages were bundled into these packages, it wasn't possible to tell how much the packages were worth, or which loans were bad. So banks that had invested a lot of money in mortgages started losing a ton of money--and still are. Meanwhile it has gotten a lot harder to borrow money. This has affected all the financial sector and anything related to homebuilding and real estate. The reduced economic activity in these sectors appears to have had some impact on consumer spending, since the holiday season was generally a disappointment, and tech firms are now forecasting lower results. Altogether there is less buying, which reduces growth, i.e a recession.

How serious this all is remains to be seen. For many years the dollar has been the world's reserve currency--countries will hold dollars as a kind of currency they can use to buy products or assets in other countries. But since the 1980s the US has been running a trade deficit--meaning that it imports more than it exports. This means that more dollars are leaving the country than returning to it. Over time this increases the supply of dollars in the hands of other countries. This is the long-term source of downward pressure on the value of the dollar versus other currencies like the Euro the Chinese Yuan. What could make this recession very serious would be a sudden loss of confidence in the dollar, in which other countries suddenly seek to sell their dollars for Euros and Yuan. This could create a balance of payments crisis for the US, in which it was suddenly unable to borrow money to finance its imports. That could lead to a severe contraction in the US and then the world economy, since exports to the US are important for the economies of many countries.

I don't think that's likely. We're more likely to see a recession of several quarters to a year or two, with continued downward pressure on the dollar, until we eventually run a trade surplus (cheaper dollar makes imports more expensive, exports cheaper). However a lot of people are going to lose their homes (and already are).

The advice to save some money for emergencies, avoid credit card debt, etc. is all very sound, and really is a separate issue from the macroeconomic effects of everyone reducing purchases. Advice dispensed on the FL forum is not going to affect the US economy much either way.

[goldbond]

it's here, it's now. you guys i really implore you to spend wisely. don't worry about what your peers or parents are talking about, most of them (no offense) know little to nothing about actual financial news, but banks are indeed about to fail, and oil is looking to drive this economy off a cliff.

the first major downfall is happening this Summer.

i want you guys to still be solvent so that you can continue to play our game :) . some of you guys will be directly hit by this though, unfortunately.

stay out of debt. for god's sake dont get into new debt. please dont fall into the outdated trap of spending money for your wife or girlfriend. it's a total mindtrap and good wives and gf's now understand the true nature of things are about survival and thriving through intelligence and not needless vacation or diamond rings and such.

dont even bother talking about Democrats or Republicans or even the War or anything else regarding politics. no matter what started this, it's happening, now. and it's going to go full blast, so I suggest you stack serious cash and literally, depending on your personal finances, buy pasta and cheap food like that. save money even for future power bills.

you can read what i'm telling you as some sort of trifle alarmist blather, but just catch up on your financial news and you will see what i'm saying right now is very true, and the Summer is going to be the first shock in a series of shocks. and i'm talking about "Starbucks' type" jobs being lost, not just factory/auto/financial jobs - any job. i'm talking about any job. please try to prepare now.

[WarriorCleric]

...the first major downfall is happening this Summer...

If we are on the cusp of a shockingly horrid recession, this summer would not have been the first shock to notice.

and i'm talking about "Starbucks' type" jobs being lost' date=' not just factory/auto/financial jobs - any job. i'm talking about any job. please try to prepare now.[/quote'] Of course "Starbucks type" jobs will be lost in a recession, they are service jobs, they offer a luxury service. And if everyone starts saving their money, and not spending it on anything but pasta and cheap food like you are telling people to, then no one is going to be giving money to starbucks, and if starbucks isn't getting money then they can't afford to pay the people who hold the "starbucks type" jobs. Which is what has been said about recessions and consumer confidence. So if you are really worried about the loss of Starbucks jobs, you shouldn't be telling people to stop buying starbucks.

you can read what i'm telling you as some sort of trifle alarmist blather

Thanks for the permission, I'll take you up on that.

If the recession does come this summer, or we are already in it, then just now starting to safe guard yourself financially is too little too late.

I won't presume to be able to forecast a recession, or deny the possibility of one. What I learned from my degree in Economics is a lot of stuff that helps myself in my own personal life, and a lot of different ways to answer the same question given the same data in the macro world. Economics, the undefined science!

If you fear a recession, start spending smartly, but don't stop spending. Holding onto tons of cash when the value of cash is going to drop isn't the financial advice I'd take, and I'd think very low of the intelligence of the person who tells me to do just that.

WC

[L-A]

Re-read Samag's post. Our very own 'Richest Man of Babylon' right there.

You know what many people are in so much trouble? - someone said it, banks gave out loans to people who should not have had them. People thought that spending all they could and a little bit (or a lot) more was the way to go - because hey, I want it now, now, now and I don't want to work for or save up for it. The bank will give me the money - LETS GO SHOPPING!!!

Anyone who has a budget and practices good spending habits will hurt like anyone, then they will get paid, put aside the money they budgeted for food, utilities and other essentials and invest the rest. As usual. They will keep doing this - and they will get ahead because, as Andy DeFruane (sp) said, time and pressure is all you need to change the world.

Seriously guys, one of the best things you can do is learn to live without spending everything you earn. Once you do this, you're ahead of a lot of people. I'm from Australia and we have a debt:earnings ratio of something like 107% - that means as a population we actually owe more money than we earn!!! WTF you say? I hear your - I don't have that much debt so I'm not contributing - and if that is an average it makes you start to realise just how much people have borrowed.

Is it insane? Yes - take me: in last two months (sub-prime credit crunch not-withstanding) I've been offered 15k on new credit cards and told i'm pre-approved for another 5k personal loan from my bank. I can already put 25k on plastic before I hit my limit. Does it come as any surprise to anyone that there are people out there who get themselves into real financial trouble? It doesn't surprise me - spend, spend, spend, now, now, now. If I maxxed all that credit/loan I could those two wall mounted TVs just like Barney (HIMYM) - I'd be the coolest cat on the block. Except I would really own them - I'd own a debt.

Simply, if you want something, save up and buy it. Don't put it on your plastic. You save the interest and can put it towards whatever you want to buy next instead of putting yourself in a bad financial position. Credit cards are a tool - nothing more. They are not the answer to you not having money.

L-A

[Imoutgoodbye]

Okay, I saw this recession coming in, like, 2002, thus why I did not go off to college and try to become a teacher. The Michigan economy specifically cannot support more teachers right now and I'm not willing to move.

On to the national recession.

#1: Yes, do continue to buy. BUT ONLY BUY WHAT YOU CAN AFFORD! Continue to stick to your monthly budgets. Hit yard/garage sales this summer, estate sales, whatever you have to do. And for Pete's sakes, eat out once a week.

#2: F*ck the stock market. RUMORS can wreak havoc on it. But if you want in, buy while they're low. There's a lot of interesting things going on, but I will say do not buy into ethanol. If you're looking at an alternative energy, this is not it.

#3: Lower your gas usage. Don't give me any of this "If we all band together for one day and don't buy" crap, it won't work. The oil companies are prepared for this, they're waiting for a down cycle, and trust me, we can't outlast them in that kind of war.

#4: Keep your debt to a minimum. No new debt. No new car. No new loans, unless absolutely necessary.

#5: You'll see things looking up after summer, I promise.

I really don't know what else to say. Just keep your heads above water. Be smart. I'd like to set aside money into the bank, but that's out of the realm of possibility currently.

Oh, wait....

#6: Someone correct me if I'm wrong, but I believe you can claim dependents for your check taxing purposes if you need extra cash now, so you're not taxed as hard. You may end up paying in at the end of the year and you MUST NOT try to claim dependents on your income tax filing...that's fraudulent.

[KRins]

1. Valek the song in your sig...10 of 10. 3 cheers and all that fun stuff.

2. The reverend is right.

3. Don't claim dependants you can't claim on your income tax...according to the H & R Block guy. He said the IRS doesn't like it and you are more likely to get acquanted with everyone's least favorite A word...Audit.

[goldbond]

"If you fear a recession, start spending smartly, but don't stop spending. Holding onto tons of cash when the value of cash is going to drop isn't the financial advice I'd take, and I'd think very low of the intelligence of the person who tells me to do just that."

really? because that's just a hyperinflationary recession/depression. and it's something that even PhD's are arguing will happen or if we're going to face a deflationary scenario. where did you get your little bachelor's from again?

the way you waltzed around and asshatted yourself, i have a pretty good assessment of your own INT, champ.