Are Americans Psychologically Ready for a Recession?

Do you notice the prices of basic items in the grocery stores increase every week? Do you ever wonder when gas prices will just stabilize a bit? Do you hear common complaints of your co-workers about living paycheck-by-paycheck? Do some of your friends have problems finding a job? Or did your acquaintance just got laid off recently? Do you know a person who just foreclosed their home? Did your office mate just complain about having no money to buy milk for her baby? Yes. Times are hard. In fact, it has been this way for over 12 months. But, do Americans think it is because of the recession?

If a recession can be analogous to an illness, the country possesses all the symptoms of an ailing economic health. But, there is no official diagnosis. The American people are waiting for someone to officially declare it.

Government officials say our economy is in "serious situation". Subtle wordings by our leaders are essential for their political existence. The government is implying that we are close to one but not in one yet. Americans interpret it with optimism. Just like America thought that our nation is invincible from a terrorist attack.

Recession Defined

Recession is defined as two consecutive quarters where the economy's total output declines. Specifically, that is, a dip in the economy for six months. In other words, negative growth in two quarters in a row.

Using this definition, America is not theoretically in recession. In fact, the first quarter of 2008 showed a GDP growth of 0.9% according to the Bureau of Economic Analysis. Preliminary figures in 2nd quarter suggested further growth. But, economic analysis relies on many assumptions. Thus, the positive growth rate in the last two quarters may not be reflecting the actually sickness of the economy.

Economic Health is like Physical Health

A patient may have many presenting symptoms of Cancer. Yet, the final diagnosis of an Oncologist is necessary. The Cancer specialist needs facts to formally diagnose. If all data on the lab tests prove negative but still the symptoms persist, the doctor will retake the test and gather new data. Sometimes, the symptoms reveal that the illness is beyond the saving stage.

Likewise, our economy has been exhibiting surefire signs of a recession. The stock market is a leading indicator. Low unemployment rates, falling house prices, rising gas prices, consumer debts and other economic indicators are lagging. Many are still waiting for indicators similar to the Great Depression.

To those who will wait for a wake up call, it might be too late. The official pronouncements are not yet there. Our leaders are depending on the economist. The economist is waiting for "numbers". Also, there will be no declarations until the presidential elections are over. Our officials also do not want to erode consumer confidence which historically worsened the situation.

Panic is a Result of Lack of Psychological Preparation

Just as it helps a Cancer patient to be informed of the disease, it is very important for Americans to braise themselves psychologically for a recession. Facing the grim reality of an economic crisis instead of denial will prevent Americans from running like chickens without heads.

Do you recall how panic led to crimes in the aftermath of Hurricane Katrina? Panic causes unreasonable behaviors. Americans must not rely on its officials to give a verdict on the state of the economy. Common sense dictates that the American economy is suffering from a very serious downturn. We cannot wait for numbers to officially validate a recession. Economists do not work on real time statistics. They rely on data that must be mathematically computed to establish a trend. The trend is a sum of various factors. The full impact of a recession won't be felt until after a year. By then, the hungry, the homeless and the unemployed are panicking.

In the movie, Schindlers List, many Jews were in denial of Hitler's intentions. There were several warnings but many opted to ignore them. The Jews held on to their material possessions and luxurious lives as long as they could. By the time reality hit them, it was too late. They were so psychologically unprepared.

Psychological preparations for a possible crisis involve brainstorming on various courses of actions. The private sector must initiate within their peers and industry to work out a plan in the event of a recession. Recession connotes images of the Great Depression. Survivors of the Great Depression, our parents or grandparents, had psychological scars from the sacrifices that they had to make.

Conclusion

Americans are consummated by the demands of providing for their families. Americans are busy finding additional income to pay off their mortgages and their bills. Debts are becoming unmanageable. Businesses are laying off workers. Jobs are scarce. Stock market is bearish, that is, falling from prolonged period of time. House prices are declining. Homeowners are facing foreclosures. Consumers and business owners are filing bankruptcy. Confidence is diminished in the investment sector. High oil prices is restricting Americans in their choices and use of cars. Financial institutions are falling down. In spite of all these indicators, Americans are still dreading to include in their vocabulary the word that starts with "R".

Like any sickness that leaves physical and emotional scars, the present economic conditions will leave psychological scars if we are unprepared for the outcome. We cannot wait for the guy in a designer business suit to tell us officially that "The United States is in a recession." We should listen to the typical Americans in jeans squirming at the surging gas, food prices and stagnant wages. We tried to follow the lead of the government to stimulate the economy by spending. As a result, consumer debt ballooned. Middle-class Americans and the working class are burdened financially.

We cannot act appropriately if we think this situation is temporary. Americans must be ready now. Americans seem to be exhibiting resilience. But the truth is Americans are in denial.

We need to prevent panic but at the same time we do not want to be in denial like in the movie Schindler's List. How can we balance our fears with what happened in the past?

Households are expected to spend frugally and wisely. Business initiatives must take place. Foreign Trade must be expanded. Tax or fiscal policies must be reformed. Even lesson learned from countries suffering and surviving prolonged recession must be analyzed.

The next article of Mrs. Treasures will examine how the typical American can prepare for an economic catastrophe.

Sources:

Bob Herbert, " Recession, What Recession?", New York Times

Peter Schiff, "American Dream Optimism in Denial of Inflation and Slumping Economy",

The Market Oracle

Rick Newman, "Economic Recession, Consumer Depression", US News,

July 28, 2008

Henry Blodget, "GDP Grew Last Quarter?", The Huffington Post

Bureau of Economic Analysis, GDP and Corporate Profits: 2nd Quarter of 2008 (Preliminary)