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Dash of Pepper

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Can we talk ourselves into a recession?
The Gazette Staff
The Gazette Staff
The answer is - maybe - regardless of the facts.
Since last December, the mainstream press has been throwing around, in unison, the word "recession", occasionally tempered by the phrase "a possible recession."
It worked for a while. The stock market went down, for various reasons. Gas prices kept rising. Food prices began to go up.
This gave the mainstream press further impetus. They began adding the dreaded "I" word - inflation - to the dreaded R word for a double whammy.
Housing prices in the country's hottest markets, after years of soaring values, began to go down. Some with long experience in real estate said this was simply a "normalizing" of an over-heated market in certain regions of the country. But this was all the mainstream press needed. They began trumpeting the word "foreclosures." If you listened only to them, you would have thought a large segment of the population was heading into foreclosure.
In fact - just two percent of homeowners were facing foreclosure. Further inspection indicated that these were people with sub-prime loans (about 18 percent of the total mortgage market). An even closer look showed that some of these people were folks who had damaged credit, little down payment and probably should not have been given loans.
But the others were "flippers", speculators who bought a property hoping to "flip" it within a few months. (To flip is to buy property at a relatively low price, with little cash, then hope to make a fast profit.) Late night cable TV was, for months, full of these foolhardy schemes. In truth, the only successful flippers are buyers with enough cash on hand to hang on if things go awry.
One thing about real estate: Interest rates are extremely low. Prices have fallen somewhat. If you have a decent down payment, what a great time to buy!
Then some things happened the reporters in the mainstream press didn't count on. Traders watch corporate profits and other indicators more closely than the evening news. The market began to turn around, as markets will. One thing about a down market - its a good time to BUY!
It also turned out that a lot of the increase in food prices could be attributed to the price of corn. A lot more of the nation's corn crop goes into the production of ethanol. The government incentives to produce this additive demonstrate the law of unintended consequences - so often the case with most legislation.
Corn and its derivatives are used in a whole variety of food products. Have you ever noticed how often corn syrup appears in the list of ingredients on processed foods? True, there have also been increases in the prices of meat and produce - in part because the price of fuel puts the cost of delivery up for these commodities.
OPEC and other oil producers refuse to increase production. In truth, some, such as Russia can't, due to a deteriorated infrastructure, making it harder to produce more. But demand is also up, especially in places like India and China. The other reason, little discussed, is speculative activity. When oil ceases to be as attractive to these faceless speculators, prices will fall.
If certain things come into play this fall, I'd go so far as to venture that the price per barrel will go below $100 by January. One thing is certain, if OPEC and other thought for one minute that we were getting really serious about drilling more of our own ample supplies, and getting serious about opening more refineries, and getting serious about reviving and refurbishing our dormant nuclear plants, the price would drop like a stone. But none of the current candidates seems one bit interested in doing this - yet it is a dominant national security concern.
As far as the "recession" is concerned, the technical definition is two consecutive quarters to negative economic growth (the GDP or Gross National Product which is the total of the goods and services we produce). We haven't yet had one quarter of negative growth but the heady growth of the past two years has slowed considerably. By the end of June, we'll have another report, so the jury is out.
However, even though the technical data doesn't match up with the word "recession", if you are feeding a large family or if you are commuting an hour or two to work, it may feel like one. While we can budget food costs to some degree, it's hard to cut fuel costs. I've heard financial analysts says that the family monthly budget for fuel is about five or six percent of the total. I have the feeling that's a general average and doesn't apply to folks with a lengthy commute.
I've heard people say they are looking at the hybrid cars, the one category where auto sales are up. Others are thinking of moving closer to their workplace, or, if possible, using public transportation more often. Revenues are up in this area.
The airlines are hurting and, outside of business travel, most people will not be choosing a fly-away holiday this summer.
One ray of sunshine - some people are taking their family vacation to a destination just 70 or 80 miles away versus the one that is 500 miles away. Also, when some things go up, others go down. This summer, hoteliers and innkeepers are offering deeper discounts on accommodations.
But the "recession" drumbeat will continue. It's not just a political year. It's a really tough and nasty political year. Nothing will really calm down until some measure of rational thought is restored after November 4th.
Last Updated on Friday, 12 June 2009 14:44  

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