Tough questions, choices linger about economy

By Adam Geller

updated 7:22 a.m. ET Sept. 14, 2009

NEW YORK - Where do we go from here?

A year after edging dangerously close to free fall, there are signs the economy is regaining a foothold. But Americans' sense of financial security is badly shaken and the nation confronts questions that defy quick or comfortable answers.

Without easy credit, what does life hold for a nation of consumers?

With nest eggs broken, will older workers need to rethink retirement?

With old institutions gone — and the government propping up others — what will replace them?

The anxieties reach deeper than those stirred by all other recessions since World War II, when businesses, workers and consumers took reassurance from signs economic life was returning to normal. Instead, the U.S. is at an unsettling economic moment, facing the possibility that some old expectations may no longer apply.

No clear route ahead
After more than a decade of building dreams atop a bubble — first in technology stocks, then in housing — there is no clear route forward. Moving on, economists say, the country will have to redefine expectations, accepting that the bubble-fueled growth the country became accustomed to is neither something to aim for nor count on, but evidence of an economy that was out of balance.

"The problem is we're longing for something we shouldn't have even wanted," said Joel Naroff of Naroff Economic Advisors in Holland, Pa.

If a slow climb out of recession is in store, as many economists believe, it could take years to answer questions about the future. Until then, the greatest comfort may be in knowing that we are far from alone in our doubts.

That much is clear to Stephen Sullivan, a Metuchen, N.J., accountant who lost his job last fall and at 62 is still searching for work. He sees it in the faces of others like him who meet each Wednesday night for his church's unemployment ministry.

"If misery loves company, this is it," Sullivan said. "There's like a big unknown here and nobody knows from reading it, trying to study it ... what will happen. What's next?"

Last fall's meltdown
The Great Recession was years in the making. But while the downturn began at the end of 2007, the economy sidestepped a meltdown until last fall.

Despite eight months of efforts by federal policy makers, the collapse in housing prices had continued rippling through the financial system. Credit markets — the economic lifeblood for businesses and consumers — were freezing up. In early September, the government seized control of Fannie Mae and Freddie Mac, the federally chartered companies at the heart of the mortgage markets.

Then, with the distractions of summer a memory, the bottom dropped out.

In a weekend of desperate dealmaking, Merrill Lynch & Co. — the nation's biggest brokerage brought low by billions in losses on bad mortgage investments — signed itself over to Bank of America. By sunrise Monday, Sept. 15, another one of Wall Street's most storied firms, Lehman Brothers, had collapsed into bankruptcy.

Investors sent the Dow Jones industrial average plummeting 504 points in the biggest single-day loss since the aftermath of Sept. 11, 2001.

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