1. News & Issues
Kimberly Amadeo

How Bad Is the Economy, Really?

By May 19, 2008

Follow me on:

A reader asks:
In our eyes the economy is in a shambles and we are extremely worried about losing everything we have. I feel that another great depression is just down the road! Is this possible? And if so, what can we do now to protect ourselves?
That's a great question, and one I'm sure that many people who lived through the Great Depression have on their minds. Especially since every day gives conflicting news reports on whether we are in a recession or even worse. Given the complexity of today's economy, confusing news about the nation's, and even the world's, financial health is something we should all get used to.

However, despite plunging home sales and prices, the world is still afloat in liquidity. That is why interest rates are low, and why the price of oil and food is high. This means that, unlike the Depression, there is still plenty of money available for investment.

Unfortunately, this money is not going into mortgages and other loans because banks have tightened their credit restrictions, and loans are really hard to get, even for good borrowers. Although this is temporary, it continues to strangle the real estate market.

What It Means to You

Although the economy is not heading towards a 1970's style stagflation, the conditions are right for slow growth (1-2% GDP) and relatively high inflation (3-4% CPI) for the foreseeable future. The best way to prepare is to reduce your debt, downsize your lifestyle, save as much as possible and keep your retirement savings in a well-diversified portfolio that includes overseas funds.

Related Reading


June 8, 2008 at 9:55 pm
(1) Brian says:

Do you think that the economy, its falling dollar, and the rising fuel prices will become a national security risk? I think it should be priority one on the new President’s to do list. The misery seems to all lead back to these issues. As an oil dependant myself, I believe that Americans are not just addicted to foreign oil but oil in general and we have been that way for a while, and now we hang onto it by thread, in one basket. There seems to be no choice…Will alternative technologies be taken seriously as a commadity? Can we change over before it is to late or is it a waiting game? Do we have a choice?

June 9, 2008 at 5:58 pm
(2) useconomy says:

Hi Brian,

I am not an expert on foreign policy and defense, so I won’t answer your question about security.

However, high oil prices will force a transition to alternative energy, conservation and smaller vehicles. It may actually be the thing to help slow global warming!


September 26, 2008 at 10:50 am
(3) Craig says:

the terrorists were in our own backyard. and they wore designer suits.

October 7, 2008 at 8:35 am
(4) Brandon says:

what should we do with the economy?

we should wright a letter to the government telling them to print more money for the economy because the economy is doing very badand hundreds and thousands of people are losing there jobs and there homes dont you think we should do something about the economy

October 7, 2008 at 1:28 pm
(5) Kimberly Amadeo says:

Hi Brandon,

What the Treasury and Fed is doing is very similar to printing money to save the economy. Every day Paulson and Bernanke are coming up with new ways to get the credit markets functioning again. Stay tuned!


November 19, 2008 at 4:25 am
(6) Matt says:

Oh my God… We should not print more money. No No No. That will cause massive inflation and destroy the wealth that we have accumulated. If we attempt to print our way out of this mess, we could end up with inflation of 25%, 50%, 100%, God only knows. What that means to us? If a person has $100,000 in the bank and inflation is 50% per anum, in two years, his bank account is worth $50,000 in real terms. In two years a bottle of Coke will cost $4.00, a double cheeseburger from White Castle $11.00, a suitcase of Budweiser, $40. Printing more money is backwards and stupid. It will be the ruin of this economy, and it seems that is what we are doing.

Call your Congressman and say NO!!!!! To any bailouts. They are only delaying the enevitable and making it worse when it does arrive.

We will lose jobs. Unemployment right now could hit 10-15% by 2010. But if the government spends more on bailouts and prints money to support those obligations, we will see greater unemployment.

Our wages will stay the same or roughly the same in nominal terms, all the while the prices of our consumer goods will go up rapidly. That will cut back drastically on our consumer spending which will create enormous layoffs in the service sectors first, then in the logistics, financial, and manufacturing (what we have left) sectors. If that occurs, we will see unemployment at the dizzying heights of 25%+… That’s more akin to sub-saharan Africa (THE STARVING PEOPLE ON THE INFOMERCIALS AT 3:00 AM).

The government cannot print money and cannot bailout anyone (All though that is too late, but we can stop more bailouts).

What the government can do is step out of the disasterous WTO, NAFTA, and other “free-trade” agreements. Why can Toyota sell vehicles freely in the United States when our Automakers cannot compete in their home-market of Japan (130 million affluent people)? Why can China, Indonesia, Malaysia, et al employ virtual slave labor and compete on an even playing field with us? Why can the productivity enhancing machines of our country be sent to this slave labor countries?…. Because these things make slightly larger net incomes for these multinational corporation. Which means much larger bonuses for executives and dividends for prefered stockholders. Institute FAIR TRADE, not “free trade.”

So the government can institute Fair Trade which will shore up our own economy and stop the flow of our industries to other nations. What else?

It can lower taxes on everyone and spend less. That’s right, government programs suck!!! None of them are profit making, therefore they add nothing to society. That is of course with caveats. Defense, Schools, Roads, etc. But we do not need National Healthcare, Social Security, Ten Million (Exageration) Universities (No, not everyone needs, nor is capable, going to college, only about 10-25%), etc. We need to downsize our Federal Government to its Constitutional size. Then the government can start paying back its debts as well as give THE PEOPLE their money back.

Then the government needs to enforce our immigration laws and only allow highly skilled migrants to enter. And by enforce, I mean DEPORT. Illegal Aliens first, then unskilled legal second (if necessary). Immigrants, especially illegal, depress our lowest wages. It has happened for well over a hundred years and if you don’t believe me, read The Jungle by Upton Sinclair. Famous book from 1904, and although it is fiction, it is very factual in the events that take place. But unskilled immigrants hurt our economy, they work for unlivible wages and draw benefits from our Social programs (which we don’t need). Those wages are not low to them though because they come from countries where $5 an hour is big money. They need to be deported first, and if in a year or two, the economy is still bad, repatriate the legals. (And yes it is possible to deport people, if it is possible to legalize all 20 million, which means each needs to be seen by an official and fill out paper work, it is possible to to deport them. Say it’s not and you are an idiot.)

After institing Fair Trade, Drastically Cutting the Size of the Government, and Repatriating Wage Depressers, all the government needs to do is base our currency on something tangible and limited. Gold is good. A based currency will be a hedge against inflation and instill confidence in the Dollar.

There, that is a solution. And far better than what we are doing.


March 6, 2009 at 12:54 pm
(7) Dick says:

Hi Kimberly,

Well… here we are some 9 months later and the comparison you made to the 1970′s is way off. If we read our history books, what we are seeing today, has remarkable parallels to 1929 and the ’30′s (including cast of character-personalities, “fix-it” programs, theories, and practices). But, this Depression will be worse. The global economy is not liquid, the prime indicator of the DJIA (the P/E ratios) is the best way to tell us where the market is going. I don’t believe we’ll lose the 89%, we lost in 1932, but I believe 65% to 70% is likely; in other words, the DOW Averages should find a bottom somewhere near 4500 to 5000 over the course of the next two years. Unemployment just hit 8.1% and it is likely to rise to 15% or higher before the end of the “Bear”.

We are in for a near term deflationary period as commodity stockpiles are depleated at discounts to generate cashflow and stimulate what (little) consumer spending may remain. When the stockpiles are gone, and the flooding of the currency with fiat paper (printed Bailout money) dillutes the currency, then we can expect hyper-inflation.

As more and more job losses mount up, consumer default on unsecured credit (credit cards) will accelerate resulting in massive commercial bank failures.

Not addressing the obvious sub-prime mortgage defaults, what were sound conventional mortgages will begin to default as mortgagees see there loan to values go “upside down” with downward spiraling home values. A second and third wave of foreclosures will result as homeowner choose to “walk” from upside down mortgages rather than continue to support a black hole.

The salaries/wages of what jobs are kept will not keep pace with inflation and the prices of essential and vital consumer goods (food, medicines, fuel) will soar. Oil may sell over $200 bbl., as the dollar’s global purchasing power shrinks. The $4.50/gal gasoline we saw in late summer of ’08 will look like a bargain as we approach $7.50 per gallon in 2010. This will place logistics (transportation of goods) in jeopardy and gas stations and store shelves will empty of goods for sale.

Urban and suburban crime will breakout as “havenots” go looking for cash, food, gasoline, and barter items.

In the Depression of the 30′s, social mores were of higher standard. The “havenots” of the time, knocked on doors asking for a sandwich and a glass of milk and in return, offered to do yard work or paint a fence. Today, our moral makeup is quite different and instead of knocking on the door, the “havenots” will kick a door in with gun in hand and simply steal what they want. First responders (police and fire) are not immune to this declining economy. Governments (local, state, and federal) will be forced to reduce manpower with the declining tax revenues and will be “overwhelmed” and incapable of responding to all needs; crime and other emergencies alike.

Cash, while losing value to inflation, will be king. Few will have any. It is quite possible that banks will close (those that survive the commerial bank failures) and the consumers’ own money will be inaccessible.

The picture I just described is one of bleak misery. The good news is that there will be a renewed sense of moral value and community togetherness. We will survive but it won’t be because the Bailouts will work (they won’t), or because President Obama’s recovery programs will put the economy back on track (they won’t). Our recovery will be the result of the raw grit and determination of the American people and their will to overcome. When we have recovered (and it will be slow and will have been from a deep chasm of economy and social depression), we will have emerged a stronger and more morally and ethically sound society.

The 30′s Depression produced an opportunity for political demagoguery that gave rise to Facism and Naziism and the rise of political figures that threatened the world. This is a possibility in this coming Depression. Let’s hope that the closer world community and flattened and intertwined international economies preclude such occasion.

Hang on. It’s going to be a very bumpy ride but, the storm cannot last forever.


March 8, 2009 at 11:29 am
(8) Roger says:

I think we all should stop watching the “mainstream media” with all the preaching of doom and gloom. There is an agenda behind it and it is not good for the people of this country or the world for that matter.

March 14, 2009 at 6:52 am
(9) Jeremy says:

It urkes me when people say all mainstream media is good for, is for preaching doom and gloom. If this isn’t doom and gloom then what is? Why WOULDN’T you have a sense of urgency about this matter? People are dying and flipping out killing family and friends over this. YES, it is doom and gloom. …repubs will lead you over a cliff and tell you it will be ok.

April 24, 2009 at 8:25 pm
(10) Mel Steffir says:

Manufacturing jobs have gone over seas to China and other countries. Asians, MExicans, Arabs, Indians, etc. have been coming here to take jobs away from Americans. Now your government has allowed this to go on for Years and Years. Your government said you just needed to be retrained, go back to college and you will find another job. Your government has been on the side of Corporations who want to pay you as little as possible. High unemployment is good for employers. People are more eager to accept any kind of work.

Yes, your government has been working against you and this has been going on for years. Obama hasn’t got a clue how to solve the problem. He probably doesn’t care either. Things are good for him. Get your own. It is up to you to stop jobs from going overseas and from people from other countries coming here to take jobs from Americans.

How can you do something to stop this. First stop buying foreign goods and two stop employing foreigners.

June 8, 2009 at 1:53 pm
(11) Bad Economy says:

I’m not mainstream media and I preach doom and gloom. I think it is unfair to restrict doom and gloom to the mainstream media, when others want in on the fun.

Leave a Comment

Line and paragraph breaks are automatic. Some HTML allowed: <a href="" title="">, <b>, <i>, <strike>

©2014 About.com. All rights reserved.