>> Jill Schlesinger: Hi, I'm Jill Schlesinger, editor at large.
>> Ray Martin: Hi, I'm Ray Martin, special contributor.
>>
Schlesinger: And we're here at "Reality Check" to find out whether this recovery is for real.
MUSIC Ray, this week Ben Bernanke said the recession is probably technically going to be called over some point this summer. But you know, people feel rotten still. Eight out of ten Americans say they are still struggling in this economy. Why?
>>
Martin: Right. First of all, this is not your garden-variety recession. This recession that we've been through was a balance sheet recession, not an inventory recession. Assets were -- people paid way too much for assets. Those asset values fell about 12 trillion. Real estate and stock market wealth evaporated overnight. Okay, but the debts were still there on the balance sheet. And now, while we're trying to wait for those assets to recover, the debts have to be paid off, or foreclosed on, or written off. Now you know, technically we might end up in a period here where gross domestic product, or GDP, is growing, and that says, "Okay, now we're growing again, so the recession is over." You know, 1 out of 10 workers is still unemployed.
>>
Schlesinger: Yeah, and you know what that doesn't speak to, as you said, your 401k account may be up from the bottom in March, but your massive debt load hasn't gone down. And frankly I'm a little bit freaked out because people are saying, "Oh, we're saving so much money; it's 4.2 percent." That's not enough!
>>
Martin: Let's talk about the implications of that real quick and why people feel so anxious and rotten. First, this economy recovery is propped up on artificial debt and spending by our government. They're worried, when that's taken away, will it be able to sustain on itself. There's anxiety. One out of ten workers, unemployed: there's anxiety. Worried about where do we go from here, and my house is worth less than my mortgage, and I've got to get that paid down. So I'm not going to be spending to grow the economy. I'm certainly not going to spend when I feel insecure about keeping my job at its pay level. And with our government in so much debt, they're not going to be able to stimulate the economy much more than they already have. So this will be a much more difficult recovery, I believe, and I subscribe to -- Jeremy Grantham's take is, we're probably in for seven lean years of much slower growth and probably two to three years of high unemployment at the levels we're at right now while this economy recovers.
>>
Schlesinger: And you know what? That just leads you to believe it ain't your mama's recovery. It is a whole new world out there. People are going to have to find discipline. It's going to be financial prudence. It's going to be discipline around saving. It's going to be sticking to an investment plan.
>>
Martin: Right.
>>
Schlesinger: And it's really going to be, take a certain amount of diligence that really for the 25 years leading up to this crisis, we lost.
>>
Martin: Right.
>>
Schlesinger: We need to find our roots as savers, and then be diligent investors and not fly by the seat of our pants and hope that the, the market bails us out, the housing market bails us out. You know what? No one's bailing you out unless you're a big bank. Then you get bailed out; that's the good news.
>>
Martin: Yeah, yeah, that's right. Think about the implications of this, too. You know, people will not be spending like they have in the last couple of decades. Consumer spending has been 70 percent of the economy. Well, now with that being cut back and continuing to be cut back as people feel insecure, the economy will just grow slower, and you have a government that can't get into any more debt -- they're in a corner -- to grow it. So we're going to grow a lot slower out there and be less competitive from that perspective. And that does create anxiety for folks. I get that. You know, and the right thing to do is you pay it down, you widen up your cash flow; a positive cash flow is a good thing going through this. Okay, and that's where you want to end up, end up if you're not already there. And then be careful about what you do spend and what assets you do buy -- only at the right price, only when you need them. And keep your overall recurring expenses down.
>>
Schlesinger: That's your Reality Check and boy, that's a whopper of a Reality Check. It ain't your mama's recovery. Hang on. It's going to be interesting.
MUSIC
==== Transcribed by Automatic Sync Technologies ====
