Today’s economy and the fear of a second recession — by guest blogger Jeremy Fordham

Jeremy Fordham wrote me and asked if I would consider publishing a guest post. I said that, provided I got to be judge, jury and execution (meaning I could accept or reject a submission at will), I would be interested. Jeremy was willing to live with those terms, and submitted the following post, which I thought was interesting enough to put before you:

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With the United States economy showing some of its worst numbers in the last several decades, it is easy for economists and average citizens alike to draw comparisons between the current recession and the Great Depression of the 1930s. However, some statistics suggest that the recession that began in the summer of 2008, or in December of 2007 as some economists claim, is nowhere near as comprehensive and devastating as the depression that happened in the first half of the twentieth century. With many Americans now fearing a second recession, it is important to understand the factors necessary to making a double dip recession a reality. By looking at the nation’s economic past, and the current state of its financial health, it is possible to reduce panic and see a glimmer of hope on the horizon.

Few would disagree with the concept of the Great Depression being the worst economic episode in the history of the United States. It all began with the stock market crash in October 1929. For the better part of ten years the country struggled with record rates of unemployment, higher taxes and an overall economic decline of 26.5 percent. Although President Franklin Delano Roosevelt instituted a number of programs designed to bring the country back to prosperity, it was not until the beginning of World War II, and the United States’ efforts to support its allies through increased production, that the economic tide really began to turn.

Despite the current economic gloom in the United States and around the world, it is important to realize that today’s numbers are not nearly as bleak as those recorded during the Great Depression. During the 1930s unemployment numbers once hit 25 percent. Thus far in the recession, nationwide unemployment numbers have hovered around the 8.5 percent mark. Where the Dow Jones numbers saw a slide of 89.2 percent in the period between 1929 and 1932, it was only down 53.8 percent for the period of October 2007 through March 2009. Many economists feel this represents the Dow Jones’ lowest period for the current recession, which they also argue ended around June of 2009.

Though the numbers may indicate that the state of the economy is nowhere near as devastating as it was during the 1930s, this is small comfort to the many families who continue to suffer as a result of the economic downturn. Many have lost their homes. Others have been unemployed for months or even years. In fact some people have given up looking for a position that suits their skills and have enrolled in master’s or Ph.D. programs in order to build upon the education they have and enhance their resumes. Others still have ended up settling for jobs that offer little pay or prestige, but at least represent a paycheck and a modicum of self-respect.

Some economists argue that the recession officially ended in 2009, with the economy making a slow, modest recovery ever since. However, few citizens seem to be feeling the effects of the recovery. In fact, many are beginning to fear a second recession. This fear is driven by more than property values that continue to be depressed and unemployment numbers that never seem to improve. Much of the current fear is being stoked by events occurring overseas.

The earthquake and subsequent tsunami in Japan in the spring of 2011 continue to have an impact on the global economy. The U.S. imports countless goods from Japan every day – or it did, when Japan’s manufacturing facilities were still operating at full capacity. Now business and consumers are faced with continuing shortages of both manufacturing materials and finished products. The scarcity of products is driving up prices and some American companies that were very much dependent on their partners in Japan have all but folded in the absence of Japanese production and imports. Economics experts in the U.S. first discounted the idea that Japan’s troubles would cause America much harm, but as Japan continues to struggle, the U.S. is feeling the effects more and more every day, which only fuels speculation about a second recession.

Continued unrest in the Middle East also heightens fears of a double dip recession. Political and economic problems in Egypt, Libya and Syria have contributed to rising oil prices. As the price per barrel of oil rises, so too does the price of gasoline at the pump. Although the United States gets very little of its imported oil from Libya, fears that the unrest will spread to other Middle Eastern nations like Saudi Arabia, upon which America relies heavily for the import of oil, have caused prices to skyrocket. When it costs more to operate the family car, people have less money for discretionary spending. Dollars that might have been spent at the mall or the movies goes into the gas tank instead and helps keep the economy stagnant.

Every economy has its share of expansions and contractions. The reality is that such conditions have always existed and will always exist. The main question is, how long will each session of expansion or contraction last? The other question that goes along with that is just how low or how high will the numbers go? In the current situation, the numbers are at their worst since the period of the Great Depression. The current recession also beats out other American recessions, such as the one that happened in the early 1980s, for the sheer length of the term.

However, that does not mean that Americans should remain thoroughly pessimistic where the economy is involved. The session of contraction will eventually give way to a session of expansion, just as it always has and always will. Americans may need to get accustomed to a new kind of prosperity whether the economy recovers or experiences a second recession. The new prosperity may come from families living within their means, building a strong portfolio of savings and investments, and living with greater simplicity. Taking such measures is just one way Americans can take back control of their own economic outlook, regardless of the situation throughout the country.

Jeremy Fordham is an engineer who enjoys and encourages discussion at the boundaries of many different disciplines. He is a proponent of renewable energy and distance learning, and contributes as a writer to resources promoting online education.