These troubling economic
times have affected almost
every facet of our society, but
many people are unsure what
has caused this mess and who
is to blame. Recently,
Washington has been swept
up in a heated debate over
how to solve this problem
and bring our nation’s fundamental
economic troubles out
of the gutter.
Across the nation, homes
are being foreclosed and people
are losing their jobs. The
American dollar is losing its
value and due to consumer
borrowing and bad loans,
there are record debt levels
and a credit crunch that has
led to unprecedented problems.
These national economic
problems have seeped down
to the local economies. Even
Bucks County, one of the
fastest growing counties in
Pennsylvania, has not been
without trouble.
Bucks County is located at
the crossroads of major transportation
networks and markets,
is known for a well-educated
labor force, low tax system,
and high quality of life.
Furthermore, the majority
of business in Bucks County
is small, and this smallness
has allowed Bucks County to
more successfully survive
past tough economic times
than the rest of the state and
the nation. However, due to
this current recession, the
county has experienced a 7.5
percent unemployment
increase since Feb. of 2007,
according to Pennsylvania’s
Center for Workforce
Information and Analysis.
This recession has made it a
particularly hard time to be a
college student, and many
Bucks students seem to be
confused as to how it all
began.
“Being a college student is
hard enough as it is without
having to deal with this recession,”
said Natalie Burke, a
21-year-old business major
from Levittown.
“The cost of groceries and
gas is bad enough, and then
worrying about paying back
my student loans is just the
cherry on top,” said 19-yearold
Jessica Collins from
Richboro. “I don’t even
understand how we got into
this mess. It’s so confusing.”
According to Bucks economic
professor Deborah
Meissner, it all began with
easy credit created by the
Federal Reserve monetary
policy. Easy credit enabled
people to purchase homes
who were previously unable
to do so. This caused the
demand for housing to
increase, and therefore housing
prices skyrocketed.
Furthermore, loans were
made to people who couldn’t
really afford them. There was
an expectation that as long as
prices increased it wouldn’t
be a problem. However, last
year is when the trouble really
began. Oil prices began to
rise significantly, and since
oil is a resource cost for other
products, those prices rose as
well.
It was then that the Federal
Reserve increased target
interest rates to combat fears
of inflation. Higher interest
rates coupled with higher
gas, oil, and food costs
pushed high-risk mortgage
holders to default, leading to
housing foreclosures.
Foreclosures increase the
supply of housing on the
market, which causes housing
prices to fall.
“With little or no money
down, many houses are
worth less than the mortgages
taken out on them.
Lending institutions find
themselves in trouble, and
since many of these mortgages
were bundled and sold
as investments, the distress
spreads to the rest of the
f i n a n c i a l
c ommu n i –
ty,” said
Meissner.
Because of
this, banks
are afraid to
lend out
money for
fear of not
b e i n g
repaid. This
tightening of credit causes
housing prices to decrease
even more and also reduces
the demand for other products
like cars and electronics.
The downward spiral continues
as companies in the construction,
automobile, and
electronics industries lay off
workers causing even more
foreclosures and further
reducing the demand for consumer
goods.
So who is to blame for all
this?
“The easy credit policies of
the Federal Reserve, the lack
of oversight by regulatory
agencies, the compensation
and reward system (bonuses),
which based rewards on the
volume of loan activity and
not the quality, and consumers
for taking on more
debt than they were able to
handle,” said Meissner.
“Who cares how it happened?”
said Meredith
Baiker, a 22-year-old communications
major. “I just can’t
wait for the economy to get
back on track, although I
have no idea how that’s going
to happen.”
According to Meissner,
efforts must be continued to
stabilize housing via the government
program to aid those
facing foreclosure and the tax
incentives to encourage home
purchases. Also important is
increased government spending
via Obama’s economic
stimulus package, particularly
in areas that would stimulate
job creation such as the
highway and renewable energy
projects.
Even if the stimulus package
spending proves successful,
and if banks become more
willing to lend again, the consumer
will most likely be
reluctant to take on more
debt.
“Hopefully this new administration
can help strengthen
our economy,” said Collins.
“Until then, I’ll be worrying
about repaying my student
loans while cutting coupons
and topping off my gas tank.”