The Great Recession?
10:12 p.m. Monday, September 29, 2008
We are currently living through the worst financial crisis in America since The Great Depression.
The stock market experienced the largest point-drop in history, closing down more than 700 points.
The good news is Washburn Finance and Brenneman Business Professor Robert Weigand said the U.S. should avoid the economic depression of the 1930's.
"The Great Depression was exacerbated by out-and-out mistakes that the Federal Reserve made during that time," Weigand said. "We will not make those same mistakes again."
The bad news, Weigand said, is that the government is making new mistakes, failing to act on a big billion-dollar bailout solution to fix a big problem.
With commercial banks beginning to fail like the investment banks before them, Weigand said America, "could be heading towards a great recession."
Age of Investors
Professor Weigand said your approach to the market and the credit crisis should depend on your age.
* If you're 61 years-old, you might consider taking some of your investments out of the stock market.
* At age 21, this might be one of the best times to buy stock and keep it for the long-term.
* In between those, at age 41, you might want to sit tight. If you get out now, you're losing money, and when you get back in, you'll be paying higher stock prices.
Still, the most important action would be to talk to a financial advisor before doing anything.
In his class, Weigand teaches his students about "V-shaped" recessions; ones where the market falls quickly, but also recovers quickly, even within a year.
However, Weigand doesn't think a quick recovery is in our future.
"A great recession would be more of an 'L-shaped,'" Weigand said. "It falls off quickly but then takes a very long time the base of the 'L,' before economic activity sparks again."
Topekans have been largely insulated from the housing slump and the ensuing credit crisis.
But Professor Weigand points out that if the nation were to fall into a great economic recession, Topeka would likely follow along with it.
"Security Benefit Group is an enormous company that does business around the world," Weigand said of one of the major employers in Topeka. "Hill's Pet Nutrition, Payless, if the demand for their product suffers greatly, that gets felt in Topeka."
And with Congress closed for business until Thursday, the hope of avoiding that recession is dropping with the markets.
"Even though the bailout is really a bad deal for the U.S. taxpayer," Weigand said, "a great recession is a worse deal."
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