Tuesday, December 2, 2008

Recession Official

The country has officially fallen into recession and has been there since December of 2007. December of 2007 was the peak of the expansion that began in November of 2001. Two of the key determinants of economic downturns, manufacturing and construction, saw the biggest declines since the end of last year while the manufacturing index saw its lowest level since 1982. Payroll levels are used extensivly as indicators of recessions and expansions. These levels have been declining every month since the end of 2007. The prices-paid gauge fell to its lowest level since 1949 from a high in June not seen since 1979. This is the steepest decline ever recorded for this index. There are severe contractions now being felt in domestic activity. Liquidity continues to decline and will continue to decline according to analysts. Credit card companies are beginning to speak of calling 2 trillion in credit lines in the next year. This means they will be suspending credit and working with debtors to pay off the line balances. This, in combination with lowering incomes, could have a disastrous affect on consumer spending and could harm business's fueled by consumer spending. On top of this, the holiday season is expected to be the worst on record.

If the decline in credit card lines is any indication of how important it is to save money then the action taken to decrease credit available for business's and individuals will certainly drive home that point. The importance of raising capital is now more important than ever with this warning from creditors. This is what is instore for 2009 alone. The fall out from this could really be brought home toward the end of next year. The country's businesses are going to see a further increase in liquidity and credit risk. Now its possible that liquidity risk can turn quickly into compounded credit risk. If business's are unable to make payments to their creditors on credit that has been called, they may not be able to raise the money needed by selling assets. There will be no buyers for any assets and they will be forced into default. Working with creditors to expand payments to 1-3 years would be the best option at this point.

http://www.cnbc.com/id/27993643

http://www.businessweek.com/investor/content/dec2008/pi2008121_134253_page_2.htm

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