Market Bounces, Overall Economy Remains Weak

Even as Wall Street surged yesterday, the New York Times reports that tremendous problems in the economy remain. The story has some bright points, like slightly increasing retail sales and credit rating downgrades to GE and Berskshire Hathaway that weren’t as bad as expected, but most of the news is pretty grim.

Falling stock and home prices have wiped out four years of gains in Americans' net worth since the start of 2008, according to new data from the Federal Reserve. Nearly half of those losses occurred over the last three months of the year, the biggest quarterly decline since recordkeeping began in 1952.

The new data underlined just how quickly wealth created during the biggest credit bubble in history has vanished, leaving Americans without the college funds, nest eggs and other reserves they had set aside.

Americans continue to turn to the government for help -- the number of people filing continuous claims for jobless benefits jumped last week to another all-time high -- and, according to a new survey, foreclosure filings increased last month, despite foreclosure moratoriums imposed by several states and major lenders.

Experts had been hoping filings would level off, or even decline. Lenders such as Bank of America, as well as Fannie Mae and Freddie Mac, which provide funding to banks to offer loans, temporarily halted foreclosures late last year, and some lenders extended their moratoriums through this month as they waited for the Obama administration to release details of its foreclosure prevention plan. That plan, unveiled last week, aims to help up to 4 million homeowners stay in their homes, but it could be months before there's any noticeable impact.

As the recession has deepened, consumers are also having a harder time paying off credit cards and auto loans. Commercial developers and businesses are also struggling to pay their debts. More defaults, combined with the credit crunch, are hurting corporate balance sheets.

Indeed, Wall Street’s collapse has eliminated tremendous wealth for everyday Americans, the effects of which have created a pretty scary feedback loop through the economy. The market will continue to fluctuate, perhaps wildly, over the course of the Great Recession – two of the ten largest leaps in the market came in the Great Depression, and one of the other two came in October. As the saying goes, "even a dead cat bounces."