Washington Week: Student Voices (O)

COLUMN: Media drives recession
By Benton Sawrey
Technician (N.C. State)
04/11/2008

(U-WIRE) RALEIGH, N.C. — Waves of foreclosures are sweeping the nation, and lending companies are tightening up the belt and not being as liberal with giving money to whoever walks in the door. Gas prices are up 33 percent from a year ago, the Euro is at an all time high against the dollar, the value of gold is climbing daily and the housing market has almost completely collapsed — it certainly sounds like we're in a recession or at least heading that way.

Through all the negative news, the fundamentals of the economy are supposedly still strong. Unemployment is still low at 4.8 percent and inflation is relatively low at 4 percent. While inflation has been rising recently, its nothing compared to the inflation rates of the 70s and 80s.

There hasn't been the sharp rise in unemployment, multiple quarters of negative growth or the decline in productivity that typically characterize a recession. In the fourth quarter of 2007, the economy grew at 0.6 percent, and some models are predicting the economy to grow again during the first quarter of 2008 as well.

The current Wall Street subprime credit fiasco is the catalyst for the slowdown. Recently, the International Monetary Fund put the total cost of the credit crunch at $1 trillion, and the world is starting to feel the ripple effects of the losses as Swiss bank UBS just had to write down $19 billion because of the subprime mess. As an investment banker described to me, this is more of a cleansing process that will get rid of many of the bad investments that risky financial institutions took and lead to potentially more regulations on the mortgage industry. While I'm typically for deregulation of industry, regulating the mortgage market may not be a bad thing once all the dust settles.

This mess has reverberated through the entire U.S. financial market and spread to the global markets as stock markets are down across the world and companies are beginning to tighten their belts.

While it's obvious the economy has slowed down, are we in a recession? The media would like you to believe so, Alan Greenspan gave the economy a 50 percent chance of slipping into a recession, and presidential candidates Barack Obama and Hillary Clinton are claiming we've already slipped into a recession — but the fundamentals of the economy show that we're not quite there.

One of the keys to beating a recession is consumer confidence. If the consumer sits on his or her earnings and saves it in case of a rainy day, it's not necessarily going to help out the economy. But with the media trumpeting all this doomsday news, can anyone blame a family for saving money in case the nation does slip into economic chaos? In today's world of 24-hour, hyper-sensitive and sensationalized news, stories that may not have gained traction 20 years ago are beginning to get coverage all day and all night.

I'll be the first to admit I'm not an economist, and the economy may yet slip into a recession. All the news certainly is discouraging. But the media needs to put things back in perspective and take a look at the attitude and panic they're creating across the world.

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