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What another recession would feel like

Alisa Roth Aug 10, 2010

What another recession would feel like

Alisa Roth Aug 10, 2010


Kai Ryssdal: The Fed, as widely predicted here and elsewhere, didn’t do a thing on short-term interest rates at its meeting today. The federal funds rate is going to stay at a record low one-quarter of 1 percent. But as so often happens when Mr. Bernanke and the gang get together to chat, it’s not about what they did — it’s about what they said.

In its statement accompanying the rate announcement, the Federal Open Market Committee said two things of note today. First, that it’s going to keep on investing in government debt, as a way to drive interest rates lower through the market. Two, that it’s doing that because the pace of the recovery has slowed.

As it happens yesterday the San Francisco Fed released a report of its own. It said the odds of an economic double dip are about 50-50 over the next two years. Since we’re all too familiar with what a recession feels like, we asked Marketplace’s Alisa Roth what a second hit might feel like.

Alisa Roth: A lot like what we’ve got right now. Only worse.

Lynn Reaser: A recession would show us returning to a story of significant layoffs in many industries.

Lynn Reaser is chief economist of Point Loma Nazarene University and president of the National Association for Business Economics.

Reaser: We also would see home prices and sales drop significantly. The commercial real estate market would deteriorate.

She says people would stop spending money; so would companies. State and local governments would be in even more trouble than they already are. If things got bad enough, the whole financial system could freeze up again. But like a lot of economists, Reaser thinks it’s pretty unlikely.

Paul Ashworth is senior U.S. economist at Capital Economics. He says it would take something really serious to push us into a double dip.

Paul Ashworth: It’s not uncommon to have lulls in recoveries. But it really does take a fairly big shock to drive an economy that’s already been in recession recently back into recession.

And he says everyone’s being much too cautious for that to happen: Policymakers are working on new strategies to keep money moving, banks aren’t lending much and people aren’t buying much either.

The more likely scenario? A long, slow recovery.

In New York, I’m Alisa Roth for Marketplace.

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