What’s Happening with the Economy?

March 12th, 2008

Today I had the opportunity to sit down with Steve Rick, a senior economist with Credit Union National Association in Madison and an Econ 102 professor at the University of Wisconsin Madison. We had a great discussion about the current state of the economy and how the economic crisis will affect students.

Steve mentioned the problems with the credit crunch. The credit crunch is when lenders are more hesitant to lend money to consumers. This means that consumers cannot get the money needed to help stimulate the economy. He described how from 2001 until 2003 the economy was in need of economic stimulus, so the government lowered the rate at which banks can borrow money (called federal funds rate). This lower rate allowed a large amount of money to become available for lenders to give out to people, which eventually led to a lot of the problems we are experiencing today such as the housing boom and bust, the credit crunch, and the potential for a recession.

Steve believes, along with a lot of other economists, that the United States economy is in a recession, but states that you can never know if you are in one usually until after it is over. However, he does believe that this recession will be longer and more severe than past ones. He says that the Fed might continue to lower rates below 2% and that the economic stimulus package from the government in the form of increased tax rebates may not have the intended affect the government would wish for. He believes that the money to fund these rebates will most likely come from borrowing from other countries, such as China or Japan. The government would like this money to be spent on goods from the United States to help stimulate our economy, but Steve says that many economists believe that this money could go back to China or Japan as US consumers spend the money on foreign goods.

The credit crunch will also affect college students. With the hesitance of lenders to loan money to consumers, college students might see increased rates in student loans or have more difficulty in getting money to pay for college. Credit card companies are also starting to lower limits, increase rates and increase fees and penalties. All of the issues affecting the economy will have the potential to affect college students in some way or another.

Click below to hear the whole interview. -Kelsey Balcaitis

Listen Now: