Are You Afraid Of A Recession

Are you afraid of a recession? You should be because a slowdown in the economy affects a lot of things such as employment rate, the price of goods and services and your ability to borrow money from the bank.

Since you don’t know when this can happen, experts advise consumers to always have an emergency fund. While some decide to invest it in stocks and bonds, others have decided to put this in the bank. When Lehman brothers filed for bankruptcy, this made others believe that their banks could also go under so some people have decided to keep their cash under their mattress.

The definition of a recession simply states that there is a negative growth for two consecutive quarters. Since this one is different from what the country has ever faced, people are advised to take drastic steps to survive the financial crisis.

One thing you have to do is to cut down on your personal expenses and only buy the essentials because no one knows when the recession will end or even if the bailout that was signed into law will work. The same goes if you have a business because monitoring your finances is the only way to make sure you are financially stable.

As a result of the slow down, more people will be put out of work and if you happen to be one of the unlucky ones, you should take this time to assess who you are and then shift to another career. Some may take the opportunity to go to graduate school because it is not enough these days to just have a graduate degree.

If you still have a job but need more money to put on the table, consider getting a second job.

You can also try scrounging around for cash by selling some old stuff or by trading in your car if what you have at home is an SUV because this vehicle consumes more gas than compact cars.

But a recession is not always bad. There is a silver lining that some of us fail to notice and you can take advantage of it.

For instance, whenever the country is in recession, the federal government announces a cut in interest rates allowing you to borrow money at a lower interest rate. You also get tax rebate from the IRS.

This is the best time to buy stocks, bonds and property if you have excess cash lying around. If you choose to go on a shopping spree, make sure that these investments will pay off in the long term so you may double or even triple what you initially shelled out.

Another benefit is that you may also get an increase in your retirement account limits.

So should you be afraid of a recession? It depends but one thing for certain is that it will affect you one way or the other regardless if the circumstances back then are different to what they are right now. Just like other things in life, there is always an upside and downside to it so don’t panic. Take a step back and assess the situation because by being prepared and looking at it objectively, you will be able to survive it just like how you have done in the past.

Are We in Recession

Are we in recession? That may be a stupid question to ask now but yes we have been for more than 2 consecutive quarters.

What makes this recession difference from the one we experienced in 2000 is the fact that there were a lot of factors which were never there before. Eight years ago, this was attributed to the collapse of the dot-com bubble, the September 11 attacks and the accounting scandal.

This time around, we can blame it on high oil prices, global inflation, a credit crisis which lead to the bankruptcy of some of the most established banks, increased unemployment, and the housing crisis.

So what do you we see? There are a lot of employees who are jobless, people are forced to sell or foreclose their homes, credit markets are frozen making it impossible for businesses and consumers to get a loan and government intervention is needed to try and prevent things from getting worse.

Just this month, the president together with the help of congress and the senate signed into law the $700 billion bailout plan that will ensure tax breaks for businesses as well as those who invest in alternative energy, increase the limit of insured bank deposits and allow the government to take over huge amounts of devalued assets from beleaguered financial companies.

When this was first voted on by congress, this was shut down but when it was approved by the senate, congress changed its mind making it the largest government intervention in the financial market since the great Depression.

Do we see the fruits of the bailout? Not yet because it will take time. Because of everything that is happening in the US, it has affected countries in Asia and Europe as well. Just to give you an idea, stock markets in the world have gone down.

On the 10th of October, the DOW plunged 697 points falling below 7,900 points. It’s lowest since March of 2003. The NASDAQ and S&P hit more than 5 year lows before recovering. What happens this week is anybody’s guess but hopefully, it won’t fall that hard again.

Because of the US market’s volatility, it has forced finance ministers from the group of 7 nations to find different ways to deal with the crisis and get money flowing again. In most cases, the central banks in these countries have decided to flood the market with liquidity. Though this may sound like a good idea, some experts say this will backfire because banks are hoarding the cash and the market will be driven by fear.

The only consolation perhaps that anyone can see in the recession is the price of oil. During the first half of this year, crude oil was more than $100 per barrel and now it is less than $75 per barrel. This could even go lower as the slowing global economy will hurt demand.

A recession no matter how you look at it is inevitable because it is part of the business cycle. In any country, there is a time that the economy expands, slows down, experiences a recession and then recovers.

It may take years for it to happen again and as history has shown, different factors caused the recession to occur. The challenge is how countries address the problem so we will never have to encounter another Great Depression.

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What Is A Recession

What is a recession? This happens when there is a significant decline in the economy which usually lasts for a short period of time. You can tell there is one when consumers don’t spend that much, a lot of people are unemployed, companies have to make job cuts, industrial production is down and lately, there is a housing crisis as people have to foreclose their homes.

The technical indicator which tells you that the country is in a recession is when there has been 2 consecutive quarters of negative growth which is measured by the country’s GDP or gross domestic product.

Experts say that this is bound to happen because it is part of the business cycle and things usually improve within 16 to 18 months.

What is a business cycle? It is considered to be a periodic but irregular up and down movement in a country’s economic activity which can be measured by fluctuations in the GDP as well as other macroeconomic variables.

Things are going up when the economy recovers and expands. The situation goes the opposite direction when the market experiences a slowdown until it eventually reaches a recession.

The last time the United States had a recession was in 2000 and this lasted for three negative quarters until 2001. Experts hope that the same thing will happen right now but this could change as the stock market has had a roller coaster ride these past few weeks and a bailout which was just approved recently will try to make things better.

But there has never been such a drastic move when the country was in recession. In the past, lowering interest rates was the solution. In 2007, the Federal government slashed the interest rate three times towards the end of the third and fourth quarter so that banks could get overnight loans for as low as 4.25%.

The recession in the United States has affected other countries and drastic steps have been taken to prevent it from getting worse. Britain unveiled plans to inject up to 50 billion pounds which is equivalent to $90 billion into its biggest retail banks. Members of the European Union agree that there must be reforms in the world’s financial system.

Is there light at the end of the tunnel? The answer is yes but it is going to be some time before anyone will see any improvements. In fact, this crisis will continue on to whoever wins the Presidential election next month making it one of the key issues.

During the last three debates, both candidates were asked what they are going to do to fight the current recession. One of them insisted on tax cuts while the other believes that another approach has to be used.

Whoever wins, be it McCain or Obama that person better have a plan so people who are unemployed will be able to work and the current state of the economy will improve. It is something that the American public will be looking at during their term as president and when the dust settles, only then will people be able to say whether or not this person was the right one for the job or they should have voted for the other candidate so we can get out of this recession.