What Happens During A Recession

During a recession, everyone basically freezes up to protect their own interests.  The crisis we're in right now is no exception to that rule.  This current recession started simply enough: the banks essentially failed.  They made terrible loans.  Now their assets are toxic and they aren't lending to anyone; they're essentially a giant flaming pile of garbage.  When small businesses can't get loans, they can't hire people.  When there's hiring freezes, unemployment goes up.

When unemployment goes up, consumers then get scared and stop buying things to save money.  That causes businesses to stop making as much money, and causes them to lay off workers.  That causes problems across the economic spectrum.  Right now, we're in a downward spiral of everyone being too scared to invest or buy anything.  It's an irony that when everyone sets out to protect solely their own interest, it pulls everyone down including them.

What the latest stimulus plan of Barack Obama tries to do is to unfreeze everything.  The plan wants to jolt the economy to life, by restarting the cycle of investment necessary for businesses to get loans, hire more people, people have more money, and then those people can purchase items again.  Whether it works or not has yet to be seen, but everyone is staring wide-eyed and hopeful that it will.

In the end, though, only time will tell.  This recession appears to be a long one, possibly the worst since the Great Depression.  Most economists aren't pegging a recovery from it until mid-2010 at least, even if the stimulus bill does everything it's supposed to do.