Ilyce Glink show notes from her September 30, 2012 show on WSB Radio predict Great Recession Part 2.
Recession is coming. I know I’ve been saying this to you, but I can tell from your emails that some of you aren’t listening. For some of you, it’s 2007, and everyone is buying stuff – houses, jewelry, Coach bags, cars – just like that Lexus dealer who called the show back then and insisted in October, 2007, that he had never had a better month.
We are six weeks away from the election, and real estateReal Estate is land and anything permanently attached to it, such as buildings and improvements. activity has dropped off considerably – as it always does in the months before an election. No one wants to get into the housing market. No one wants to make a big mistake.
The fear factor is ginning up the game and you’re starting to imagine life after the election.
Listen to what I’m telling you. It doesn’t matter who wins because the economy is in serious trouble and neither candidate, neither President Obama nor Governor Romney, has enough support in Congress to get things done.
And that’s where the Fiscal Cliff comes into play.
If Congress doesn’t deal with this, this fiscal crisis we’re heading toward, we’re in big trouble, and even if they do, we’re heading into recession. The question will be how bad the recession is going to be.
Here’s a brief primer on the Fiscal Cliff.
“Fiscal cliff” is the popular shorthand term used to describe the conundrum that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.
Among the laws set to change at midnight on December 31, 2012, are:
- The end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers).
- The end of certain tax breaks for businesses
- Shifts in the alternative minimum tax that would take a larger bite out of your paycheck each week.
- The end of the tax cuts from 2001-2003.
- The beginning of taxes related to President Obama’s health care law.
- Big spending cuts agreed to as part of the debt ceiling deal of 2011 will begin to go into effect. According to Barron’s, over 1,000 government programs, including the defense budget and MedicareMedicare is a program of Hospital Insurance (Part A) and Supplementary Medical Insurance (Part B) protection provided under the Social Security Act., are in line for “deep, automatic cuts.”
In dealing with the fiscal cliff, U.S. lawmakers face three choices:
- Let the current policy go into effect beginning on January 1, 2013. This means tax increases and spending cuts that are expected to weigh heavily on growth and possibly drive the economy back into a recession. The plus side: the deficit, as a percentage of GDP, would be cut in half.
- Cancel some or all of the scheduled tax increases and spending cuts, which would add to the deficit and increase the odds that the United States could face a crisis similar to that which is occurring in Europe. The US deficit, now at $16 trillion, would begin to grow.
- Address the budget issues to a limited extent, which would have a more modest impact on growth and the deficit.
There is a fourth option: If Congress does nothing, the Bush tax cuts will expire at the end of the year. Yes, your taxes will go up a little, and $1 trillion of deficit over 10 years will disappear.
But the Fiscal Cliff will cut the budget so severely that if we fall off, I believe we will plunge headfirst into a major recession.
The only other thing that can be done is to kick the can down the road. Our $16 trillion debt is costing us virtually nothing. And for now, when we’re functionally in a recession, that’s okay. But what we should be using our debt for – rebuilding roads, bridges and schools – isn’t happening. And that’s NOT OKAY.
Right now, banks are borrowing from the Fed’s discountNewly-issued bonds are typically sold at some sort of Discount. So a bond that has a face value of ,000 and sells for 5 has a discount. When interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds. rates rise, bonds are discounted more because you need a less expensive bond to achieve the same interest rate. window at virtually 0 percent, a level that the Federal ReserveThe Reserve is the amount of money set aside by a condo, co-op, or homeowners' association for future capital improvements. says it will maintain through 2015! This alone should tell you how badly the U.S. economy is doing right now.
Banks are turning around and buying U.S. debt that pays 1.5 percent interest. That’s free money to the banks, pumping up their profits. But it isn’t helping the economy. Not really.
Growing the economy should be the top priority. Getting people employed so they can pay their bills, that’s what we need to do. Three years after the recession officially ended, the vast majority of America believes it is still in recession. The U. S. growth rate was 1.3 percent in the last quarter. We’re slowing down.
You’ve got to be prepared. You’ve got to save money. You’ve got to have a plan in case you lose your job. You’ve got to start networking, building up your resources, understand how you’re going to get your bills paid in case the worst happens.
Because it just might.