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.
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.
Not alone » 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?"
The Great Recession was years in the making. Although the downturn began at the end of 2007, the economy sidestepped a meltdown until last fall.
Despite eight months of efforts by federal policymakers, 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.
In recent months, stocks have regained more than a third of the ground lost since their peak. But unemployment has soared, costing 6.7 million jobs since the start of the recession. Nearly 14.5 million people are out of work.
The hit to incomes has coincided with a painful blow to Americans' wealth, not just in stocks but to the equity in their homes. Although the dot-com bubble was somewhat larger in dollar terms, the collapse of the housing bubble has been much more far-reaching, and it has depleted public confidence, as well as resources.
Mindset change » The crisis has had a pronounced impact on the nation's economic psychology. Consumers have cut back sharply on spending, stepped up saving and begun re-examining lifestyles financed with borrowed cash.
It's unclear, though, whether that mindset will last, and if so what it might mean.
"This is an unstable environment and it's really hard to predict which way it's going to go," said Keith Campbell, who studies U.S. consumer psychology and is co-author of The Narcissism Epidemic: Living in the Age of Entitlement.
The answer is critical. As U.S. manufacturing has continued to move overseas in recent decades, consumer spending has sustained the economy, accounting for more than 70 percent of the gross domestic product.
That spending grew even as pay stagnated, because of increased reliance on credit and debt. At the same time, homes were touted not just as places to live, but as investments whose prices could only rise.
That economic myth retains much of its power.
"We are finding that most homeowners just think of this [the collapse of the bubble in home prices] as a temporary glitch," said Robert Shiller, a Yale University economist.
But those views are evolving. Some consumers will be so chastened by what has happened that even if they have the capacity to return to old ways, they'll continue new patterns of spending and savings. Others may not have a choice.
"The economy will never really recover to the way it was before and that's not necessarily a bad thing," said Robert Manning, an expert on consumer credit and debt. "It was based on consumers getting deeper and deeper into consuming ... and that's a disaster."
Uncertainty ahead » But with lines of credit to consumers cut this year to half of their 2006 peak, even consumers who want to return to spending will be constrained.
That sets the scene for an economy that will grow much more slowly than in the past, creating fewer jobs and keeping unemployment high. But the economy is made up of many different actors, and the uncertainty ahead raises questions for each one.
Some of the most daunting are those set out for young adults, now exiting school and joining the job market. Employers have cut millions of jobs for which they were destined. Economic uncertainty has made middle-aged and older workers reluctant to change jobs or retire, limiting movement in the workplace.
"I'm trying to warn people that they're going to have to prepare themselves differently," said Phil Gardner, director of the Collegiate Employment Research Institute at Michigan State University.
In a survey by the National Association of Colleges and Employers in May, fewer than 20 percent of the new graduates who applied for a job said they actually had one, down from 51 percent a year earlier.
Gardner believes the job market for new graduates will not turn around until 2011, and the calculus is further complicated by the mindset of workers ahead of them. Adults in late middle-age suffered the biggest losses when the stock market collapsed, a recent survey by the Pew Research Center found, and 75 percent said this recession will make it harder to retire.
Workers were retiring later even before this recession, partly because of the withering of traditional pensions, said Steve Sass of the Center for Retirement Research at Boston College. At the same time, many people also discovered new satisfaction in continuing to work. As a result, the average age for retirement among men has edged up by about a year, to 64.
Service economy » But the setback of the recession intensifies the pressure on many more people to work longer, potentially pushing the average retirement age to 67.
"It's not going to be easy, but that's what we as a nation have to do, because we haven't saved enough," said Sass. To keep working, though, people will have to find a path across a shifting economic landscape.
For most of the past two decades, U.S. workers have heard repeatedly that the future lay in claiming a role in a new economy based on services. Much of the country's manufacturing was ceded to countries with low-cost labor.
But a huge part of the service economy was the financial sector, which has been devastated by the meltdown. At the same time, other countries have grown into economic rivals not just by offering low costs, but by improving the education of their workers and their technological infrastructure. The U.S. economy's reliance on borrowing has resulted in a gradual shift of wealth to other parts of the world, most notably to China.
In every previous recession since World War II, policymakers found a route to recovery by cutting interest rates and unleashing pent-up demand for cars, homes and other purchases. But with interest rates at historic lows and over-consumption part of what got us here, this downturn defies such an approach, said Dean Baker of the Center for Economic and Policy Research.
Economists say the U.S. will have to re-examine policies that have kept the value of the dollar high. A strong dollar keeps the cost of imported goods low for home consumers even as it drives domestic manufacturing overseas. The nation may have to rethink its reliance on cheap imports and abandonment of many manufacturing jobs.
Larger role » In the heat of this crisis, the federal government has seized a much larger economic role -- moving toward stronger regulation of financial markets, propping up companies that were poised to fail and, arguably, picking winners and losers.
Those actions raise serious questions about government's long-term role, said Rajshree Agarwal, a University of Illinois economist. The Obama administration has promised that many of these moves are temporary. But it is setting precedents and regulations that risk interfering with an economy whose chief strength is innovation, she said.
Others see it very differently, arguing the government must move more aggressively. A more decisive Washington could set and fund priorities in education and technology for an economy lacking direction and up against increased global competition. It could force banks to reduce the balance homeowners owe on their mortgages.
Without the latter, Manning said, millions of Americans will be so saddled with debt they will have no chance of accumulating the savings to send their children to college, start small businesses or finance their retirement.