NEW YORK | Where do we go from here?
A year after edging dangerously close to free fall, there are signs the economy is regaining a foothold. But Americans’ sense of financial security is badly shaken and the nation is confronting questions that defy quick or comfortable answers.
Without easy credit, what does life hold for a nation of consumers?
With nest eggs broken, will older workers need to rethink retirement?
With old institutions gone - and the government propping up others - what will replace them?
The anxieties reach deeper than those stirred by other recessions since World War II, when businesses, workers and consumers took reassurance from signs that economic life was returning to normal. Instead, the U.S. is at an unsettling economic moment, facing the possibility that some old expectations may no longer apply.
After more than a decade of building dreams atop a bubble - first in technology stocks, then in housing - there is no clear route forward. Moving on, economists say, the country will have to redefine expectations, accepting that the bubble-fueled growth the country became accustomed to is neither something to aim for nor count on, but evidence of an economy out of balance.
If a slow climb out of recession is in store, as many economists believe, it could take years to answer questions about the future. Until then, the greatest comfort may be in knowing that we are far from alone in our doubts.
That much is clear to Stephen Sullivan, a Metuchen, N.J., accountant who lost his job last fall and at 62 is still searching for work. He sees it in the faces of others like him who meet each Wednesday night for his church’s unemployment ministry.
“If misery loves company, this is it,” Mr. Sullivan said. “There’s like a big unknown here and nobody knows from reading it, trying to study it … what will happen. What’s next?”
The Great Recession was years in the making. But while the downturn began at the end of 2007, the economy sidestepped a meltdown until last fall.
Despite eight months of efforts by federal policy makers, the collapse in housing prices continued to ripple through the financial system. Credit markets - the economic lifeblood for businesses and consumers - were freezing up. In early September, the government seized control of Fannie Mae and Freddie Mac, the federally chartered companies at the heart of the mortgage markets.
The crisis has had a pronounced impact on the nation’s economic psychology. Consumers have cut back sharply on spending, stepped up saving and begun to re-examine lifestyles financed with borrowed cash.
It’s unclear, though, whether that mind-set will last, and if so what it might mean.
The calculus is complicated by the mind-set of older workers. Adults in late middle-age suffered the biggest losses when the stock market collapsed, a recent survey by the Pew Research Center found, and 75 percent said this recession will make it harder to retire.
Workers were retiring later even before this recession, partly because of the withering of traditional pensions and the raising of the age for full benefits under Social Security, said Steve Sass, associate director at the Center for Retirement Research at Boston College. At the same time, many people discovered new satisfaction in continuing to work. As a result, the average age for retirement among men has edged up by about a year, to 64.
But the setback of the recession intensifies the pressure on many more people to work longer, potentially pushing the average retirement age to 67.
To keep working, people will have to find a path across a shifting economic landscape.
For most of the past two decades, U.S. workers have heard repeatedly that the future lay in claiming a role in a new economy based on services. Much of the country’s manufacturing was ceded to countries with low-cost labor.
But a huge part of the service economy was the financial sector, which has been devastated by the meltdown. At the same time, other countries have grown into economic rivals not just by offering low costs, but by improving the education of their workers and their technological infrastructure. The U.S. economy’s reliance on borrowing has resulted in a gradual shift of wealth to other parts of the world, most notably to China.
In every previous recession since World War II, policymakers found a route to recovery by cutting interest rates and unleashing pent-up demand for cars, homes and other purchases. But with interest rates at historic lows and overconsumption being part of what got us here, this downturn defies such an approach, said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
Economists say the U.S. will have to re-examine policies that have kept the value of the dollar high. A strong dollar keeps the cost of imported goods low for home consumers even as it drives domestic manufacturing overseas. The nation may have to rethink its reliance on cheap imports and abandonment of many manufacturing jobs.
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