In the economics analysis arena, there is a quote that sums up the challenge of these times: “Things can stay irrational longer than the rational can remain solvent.”
The Federal Reserve is planning to test the largest banks against a severe economic event. The following is their stated criteria for a “severe” event:
In the “severely adverse” scenario, the unemployment rate peaks at 11.25 percent, stocks fall nearly 50 percent and U.S. housing prices decline 25 percent while the euro area also sinks into recession. Developing economies in Asia also experience a “sharp slowdown,” the Fed said.
Let’s analyze their numbers that make up the severe scenario. An official unemployment rate of 11.25% would probably equate to a true unemployment rate of 36.4% based on John Williams’ www.shadowstats.com current unemployment reporting of 23.3% unemployment versus the government’s 7.3% massaged number. With this level of unemployment, healthcare, retail, pharmaceutical, automobile, and other industries would all be in a downward spiral. Pension funds losing 50% of their stock portfolio value would surely curtail benefits. Housing prices could easily decline past their 25% expectation, however mortgage debt remains high thus promoting another wave of defaults.
Interest rates have virtually no where to go but up. This would be a reasonable scenario to consider since the Fed is out of ammunition to boost the economy.
If the Fed is considering this scenario, I suggest you and I should also plan for it. It is what it is, no sense getting angry about what they have done. Simply focus on your plan to deal with such a downturn as best you can. Our Heavenly Father has a plan and those who hear will carry it out.