Potential Recession

What are the signs and how do we deal with this?

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By Rachael Lundy

The U.S. is potentially facing desperate times on the verge of a recession. As the value of the dollar lessens, concerned consumers, businesses and students alike have become conscientious of their spending. Homes are in foreclosure, gas has become a golden commodity and once-thriving retail chains are now filing for bankruptcy

Those who have invested in real estate need to be concerned with the state of this economy. Homeowners are affected by this potentially declining economy, whether it is directly or indirectly. As many consumers have become far too overwhelmed with their home purchases, foreclosures have become increasingly common. It has become crucial for the government to help consumers with this. By modifying home loans, the government is attempting to alleviate this housing crisis, currently faced by all real estate investors.

�Even if you don�t have sympathy for those borrowers, the foreclosed properties are going to impact the surrounding neighborhood properties,� said Sheila Bair, chairperson of the Federal Deposit Insurance Corporation, in a U. S. News & World Report interview. �Vacant houses contribute to crime and erode the tax base, while distressed sales force down the value of nearby properties. In a broader sense, widespread foreclosures tend to undermine the confidence that home buyers and lenders have in housing markets.�

Merrill Lynch�s chief economist, David Rosenburg ,did not have a much better outlook on this situation.

�Uncle Sam hasn�t done nearly enough to bolster the housing market or return confidence to the credit markets,� said Rosenburg.

Future university students across this country also need to be aware that this decline in the economy will affect them as well. Because of the waning market, many parents are unable to pay for their children�s attendance at the universities of their choice. Some parents, who previously planned on accessing equity in their homes as a means of financing their children�s college education, have been prevented from doing so because of the drop in home values.

Those who are currently in college, seeking financial assistance, may have a somewhat more difficult time looking for certain types of loans. In general, tuition expenses have increased, but financial aid has not continued to increase at the same rate. This is a serious problem facing students.

Due to the increase in tuition expenses and the rise in costs all around, more students are seeking educational loans in order to be able to earn their college degrees. Individuals in search of these types of loans may have a more difficult time acquiring those that are privately funded, as lenders are becoming increasingly conservative on the types of loans they lend to borrowers.

Those seeking educational loans may have a better chance at gaining approval for the Stafford loan, although the amounts of these loans do not increase at the same rates as the rise in costs of tuition expenses.

The decline in this economy has left few completely unaffected. A multitude of large retail business chains have even begun to file for bankruptcy, as consumers do not have nearly as much expendable cash as they did before this potential recession, to spend on non-essential items.

Chains that would normally seek out business loans to help them through this declining cycle of sales are now being turned away by banks, which are already under too much pressure dealing with the aforementioned home crisis. These retail chains are being forced into bankruptcy by the declining market, which affects so much more than the actual business itself. Shippers, manufacturers and many other retail affiliates are not going to be fully reimbursed for their services already rendered.

Some retail chains that have filed for bankruptcy include Bombay, Sharper Image, Levitz and Fortunoff, as stated in the New York Times. Although there are many retail businesses which have not yet filed for bankruptcy, they are still very much affected by this shift in consumer spending and have been forced to alter their business plans as a result.

�Linens �n Things is considering a bankruptcy filing after years of poor performance and mounting debts,� explains The New York Times. �J. C. Penney, Lowe�s and Office Depot are scaling back or delaying expansion. Office Depot had planned to open 150 stores this year; now it will open 75. Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through what could be a long economic downturn. Over the next year, Foot Locker said it would close 140 stores, Ann Taylor will start to shutter 117, and the jeweler Zales will close 100.�

This nation�s decline in economy has forced many to compromise a great deal. Parents are working two jobs in order to finance their children�s college education; retail businesses are closing, or downsizing, at alarming rates; and the nation, as a whole, must contend to the housing crisis, while making cutbacks in order to simply afford basic, daily necessities.

Send your comments to editor@tigerweekly.com

Originally Published: Issue 606 - April 30, 2008

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