Blacks Beware: 5 Reasons to Expect Another Recession

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From the way things look, America is developing economic problems similar to the ones we confronted in 2007 and 2008. Unfortunately, blacks and other minorities were hardest hit by the financial collapse, and we’re still in a vulnerable position.

Similar to the half-truths officials shared during that unforgettable period, today, the Federal Reserve and Treasury Department continue to paint a rosy financial picture when basic market fundamentals are providing warning signs that directly contradict that position. There are five signals that may indicate the start of another recession:


1. Unemployment in the United States hasn’t improved and it appears that it won’t rebound for a long time. Weekly unemployment claims continue to range between 400,000 to 500,000 and may reflect the classic recession scenario. The rates of actual unemployment may be 18 to 20 percent nationally. The rates for minority populations, younger adults and new college graduates seeking full-time employment may be double that.

2. U.S. treasuries are still in an awkward predicament. First, interest rates on U.S. treasuries are falling very fast, reflective of a weakening economy. Yet, China, Japan and other nations continue to gobble them up, but for how long is the query, since the yield on the two-year note just hit historic lows That is lower than the rate that occurred during the credit crisis in 2008. Add this to the fact that the government stimulus, which cease at the end of this year, was the main reason for the brief recovery.


3. The way the U.S. is treating the economic crisis is closed-minded and myopic. The European debt crisis is ongoing and countries like Greece, Ireland, Italy and Spain could still default and have a negative impact on the global economy for a long time to come. Reasons include inter-bank lending and the volatility resulting from underlying problems of management of the international financial system, the lack of transparency around some of the most sensitive financial instruments and ignorance concerning the value of such instruments since this type of debt isn’t maintained via traditional accounting practices. The inter-bank lending crisis happened because participating institutions didn’t know the true value of other institutions’ assets and continue to hold onto their cash reserves.

4. The housing crisis continues to be a problem — and it is the central cause of the current economic crisis. New home sales continue to fall.

5. Market volatility has accelerated in recent weeks around the world, even in places that are relatively sound like Asia. Here in the U.S., the Dow Jones Industrial and S&P 500 have both given bear market trading signals. The small cap Russell 2000 is showing a bear market loss. Such volatility will continue as long as difficult to understand financial papers and instruments continue to drive real markets rather than serve to stabilize them.

torrance stephens, ph.d.

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