Wonder why the US is in recession? This explains it.

[killer2021]

Honestly, is there any easier way to explain why we are in recession after looking at this?

In other words, home equity extraction became a major source of financing for households in the US. Unfortunately, the housing boom ended abruptly in 2006. Consequently, home equity extraction has contracted ever since whilst the personal savings rate seems to have bottomed out

http://financialtimesdaily.blogspot....xtraction.html

[Jeremy]

Doesn't surprise me at all, and in fact, I wrote about it back in December when I came across an article that talked about how people were going to have to cut back on Christmas presents this year because there was no more home equity to tap into. Yes, that's right. People were using equity in their home to finance things like Christmas presents for their kids.

So no, it isn't a surprise at all. For quite a few years now, people have been treating their homes like a checking account. I also worked in a bank just before all of the real estate problems came about, and I was shocked to see how many people were taking out HELOCs or HELs. Of course to be fair, the bank was pushing them a bit too, but the pitch was as a safety net. While that is with good intentions, it is clear that people who can't save money as it is will have a hard time resisting that new $25,000 HELOC that they just opened up.

[beansac]

The actual definition for a recession is two quarters of negative GDP change. The last two quarters available, (Q3+Q4 for 2007) both had positive growth. Q3 had 4.9% increase, while Q4 had 0.6% increase. This shows that the US is definitely not in a recession. There is a slowdown in the economic output, but a natural contraction should be expected after 5 years of extreme growth. What is a normal part of the business cycle is becoming a recession.

Just because the news keeps saying "We are in a recession!!!!!!" doesn't make it true. When newspapers say "We are in a natural slowdown, which is necessary after years of positive growth," it doesn't sell papers. When the US has had two quarters of negative growth in a row, then it's a recession.

[rstlne]

Originally Posted by beansac

The actual definition for a recession is two quarters of negative GDP change. The last two quarters available, (Q3+Q4 for 2007) both had positive growth. Q3 had 4.9% increase, while Q4 had 0.6% increase.

The problem with the definition is we won't know that we're in a recession until half a year into it, by which time we may already be through the worst part. Let's just say this then: Some of us suspect that we're already in a recession but with no firm evidence of such yet.

[wildgift]

The HELs covered for general wage stagnation that didn't keep up with the even modest inflation we experienced. Also, there's been an increase in profits (and an exuberant stock market that rollercoasters), as well as increased consolidation of wealth, so, this creates disequilibrium.