What’s Happening with the Economy?

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

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5 Comments »

I enjoyed the detail of the conversation. Steve Rick went into clear detail into what started the current recession that he believes the United States is currently in. I thought his discussion of the three reasons which he believes helped push this decline were very clear and understandable. I also thought his ideas on ramifications was very strong. His discussion of foreign economic impacts, United States results, and the impact for college students was very thorough and applicable to the listeners current situation. I was wondering how Steve Rick believes the United States/world economy can get out of this recession and a general discussion of economists ideas. Other than that question, I thought Mr. Rick was an excellent speaker and made it very easy to understand some more challenging topics in the current economies state. I would like an overall talk about the financial needs of college students including loan topics, investment possibilities (if anyone has some money), and anything else that would be applicable to college students. Overall, it was a good interview.

Comment by Jeff — April 9, 2008 @ 9:57 am
How do you feel about Europe’s decision to cut interest rates, in order to help the american economy? I felt Steve Rick did a good job elaborating on the current state of the economy, and how we got to this point. He puts his ideas in terms easy to understand. Rick also does a good job talking about the economic stimulus program, which may be hard for some people to understand.

Comment by Dan — April 9, 2008 @ 9:58 am
Comments - I think this podcast brilliantly sums up what the Fed is doing and what the US economy’s current state is. I am currently writing a research paper for my class and found the Professors explanation extremely clarifying on some topics that i was concerned over. He basically sums up what the former US Treasury secretary, Lawrence Summers, says.

“A liquidity vicious cycle - in which asset prices fall, people sell and therefore prices fall more; a Keynesian vicious cycle - where people’s incomes go down, so they spend less, so other people’s income falls and they spend less; and a credit accelerator, where economic losses cause financial problems that cause more real economy problems.”

Question - Like the Proffesor said, we cannot completely know when we are out of a recession untill it ends, my question is regarding the baby boomer crowd that is retiring, when they retire won’t the mass cash-ins of their 401K further cause the government to sink into greater debt, what will be the possible remedy to this situation?

Topic Suggestion - I would suggest the likelihood of the effects the babyboomers will have on the recession if it continues untill they retire.

Comment by Umair — April 9, 2008 @ 10:04 am
I first would like to say that I think this new radio show is a great idea and can really help educate students on the various topics effecting our economy nowadays. I listened to “What’s happening with the economy” and thought that it gave a good brief outline as to what’s going on in the economy right now and more importantly how it is and will effect students. One question that I had was: Why doesn’t The National Bureau of Economic Research tell us if we are in a recession right away? Also, I think that you should make a podcast about Bear Stearns.

Comment by Justin — April 9, 2008 @ 10:05 am
Thanks for all your comments about this episode. I will try to answer some of your questions, and will check with Steve Rick on a few others.

First, to Umair: I wonder what will happen when the baby boomers cash in on their 401k’s, however, I don’t believe that they will all take the cash out at once. I also don’t think it would harm the government much considering they do not control their 401k’s. I think that cashing them in would have a significant tax effect for them considering that money comes out as income. With the current tax laws, I think they would be better rolling it over to an IRA slowly, but especially in 2010 and 2011 (if they meet the requirements such as retiring, over age 59 1/2, etc.) when they can convert it to a ROTH without penalty (ROTH IRA money comes out not taxed and in 2010 they can convert money to a ROTH from a traditional without income restrictions). But in reality, I don’t think that the 401k issue would affect the government much, it might even help if the people spend their money on goods and services.

Justin- I don’t think the NBER can tell us we are in a recession because you don’t officially know that you are in a recession until after you have come out of it. Rick speculates that we are because of leading economic signals such as unemployment rates. But many economists do believe that we are in a recession but cannot be sure until after it is done.

Thanks for your comments!

Comment by talkingcents — April 13, 2008 @ 7:52 pm

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