A Year Into The Credit Crunch, More Pain Is Expected.
The surge in home prices helped boost the financial condition of consumers from 2002 to 2007. The eighteen trillion run up in household net worth, defined as all assets from stocks, bonds and real estate propped up spending and offered an alternative to traditional savings.
Real Estate has dragged down the wealth effect and with no help from the stock market, that plus is turning into a minus and the hit could be much larger than the data implies.
That’s because the widely followed measure of household net worth, compiled by the Federal Reserve, may be understating the overall loss. According to the Fed, overall net worth fell by $1.7 trillion in the first quarter, after declining $530 billion in the fourth quarter.
The economy is not in recession until a panel at a private institution called the National Bureau of Economic Research says so. Unofficially, many economists think a recession started six or seven months ago even as the economy has continued to expand albeit at a tepid pace.
Many assume that if the economy expands at all, then it isn't a recession, but that's not true. The bureau defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months." If enough people lose their jobs, factories stop making things, stores stop selling things, and less money lands in people's pockets, it is probably a recession.
Whatever it is called, it is a painful time for tens of millions of people. Indeed, this may turn out to be the most wrenching downturn since the two recessions in the early 1980s; almost surely worse than the recession that ended the technology bubble at the beginning of this decade.
