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What This Recession Nonsense Really Means for Us
Recession, shmecession.
Everyone keeps blathering on about the dwindling dollar, the deflating markets, and an economy that is sure to dissolve into something obscenely dire any day now. But what does that all really mean and what exactly are we supposed to be doing about it?
For those of us who are too young—or let’s say financially challenged—to own a home or have loads of money in various investments, the recession is something that seems utterly dreadful. But, we’re not entirely sure why.
The full explanation of what causes a recession is too intricate to explain here. And it would probably cure your insomnia quicker than an Ambien CR. All you really need to know is what to expect if a recession really comes to pass.
So we phoned Villanova economics professor David Fiorenza to help us get a clue. And here are the wonderful things he said we have to look forward to:
- You might have trouble getting a loan for big stuff like houses and cars. During a recession, banks get nervous that people will struggle to make their payments. So they make it more difficult—particularly for young people—to qualify for hefty loans.
- You might lose your job or, at the very least, you might miss out on that bonus or promotion you’ve been waiting for. A recession usually means that businesses lose money as people begin to consume less of their products. And if your boss ain’t getting paid, you won’t either.
- Your gas and utility bills may become more expensive. As your salary remains stagnant while oil and gas prices continue to rise, your utility bills will begin to sting even more.
- Your investments may take a dive. As people spend less and companies begin to lose dough, the market will contract. Those stocks you bet on may become less fruitful.
- You will not be taking that vacation. As all of the above begins to happen, you won’t have as much disposable income and you probably won’t be able to take that trip to St. Barths or wherever — especially if you don’t have a job to come back to.
So what should you do?
Well, if you haven’t figured this out already, you should probably be careful with your spending because of the whole you-might-lose-your-job thing. Or, you can sell everything, buy nothing, put your cash under the mattress and rock back and forth in the corner like Demi Moore did in St. Elmo’s Fire.
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(21) Comments
Yo kids let me break it down to you and rap about this recession stuff. See, here’s what it means: YOU’RE GOING TO LOSE YOUR JOB DEWD. Any other questions lol
My salary has remained stagnant while oil and gas prices continued to rise for the past 7 years, despite a supposedly great economy that occurred during that timeframe.
Why a recession would make this any worse than the current reality is beyond me.
“Big Stuff” like houses and cars. But I will have no problem getting my Tonka trucks and Legos because this article sounds like it was written for kindergarten kids.
People saving money is my understanding of how a Recession continues! The government wants to increase spending again by making tax cuts and giving Americans more money to spend (announced that every American will receive a cheque) in order to stop the downward spiral of Recession. Though saving is helpful on the brink of a Recession, if we all spent more money wouldn’t that be overall better for the economy in reducing the effects of Recession, cos in turn we would get that money back from our employees? correct me if im wrong.
Assuming everyone spending money would prevent a recession, it makes sense from a personal standpoint not to spend. There are four basic combinations that describe the situation. You spend your money and everyone else spends their money. Recession avoided. If you save your money, and everyone else spends, then the recession is avoided, and you still have savings. If you spend, and everyone else saves, recession is not avoided and you have no savings.. If you and everyone else saves, recession is not avoided, but we all have some money saved. So, it only makes sense to spend if you are sure that everyone else is spending, and since you can’t be sure of that, logically you need to save your money.
However, I’m just an engineer (in college) and have no real education in economics, correct me if I’m wrong.
Geordie
You are right to a point. Saving money will only help to fuel the recession however you have somewhat of a catch twenty two. If you do not save and you lose your job that would be much worse off than if you had put some of that cash away while you were working. Let’s be honest here the ultimate concern will be for yourself and your families well being. Also consider this if people did go out and spend more much of what would be purchased would be manufactured in another country and instead of us fueling our economy we would be fueling theirs. Giving a check to people would not be an ideal way of helping our economy. If everyone were to get a few hundred dollars they in general will either save it because of fear of recession or spend it but a few hundred doesn’t go far. To energize our economy we need to CREATE jobs for Americans. Take that same money and fix our infrastructure in this country thereby creating jobs and pumping that money back into OUR economy.
Well, if you haven’t figured this out already, you should probably be careful with your spending because of the whole you-might-lose-your-job thing. Or, you can sell everything, buy nothing, put your cash under the mattress and rock back and forth in the corner like Demi Moore did in St. Elmo’s Fire.
putting the cash under the mattress won’t help much either because inflation will cause the money to lose it value over time. i am no expert but we should try understand macroeconomics better before we can just go around advising people. that too financial ones.
A recession is easily avoided, just cut the budget by $1 trillion/year. You can cut half that by withdrawing the 500,000 troops from places like Iraq, Afghanistan, but don’t forget Korea, Japan and Germany, and thousands more.
Imagine 500,000 troops spending their money in america, and the government with $1 trillion more/year to put against the debt.
@Michael Liberty
While I’m whole-heartedly with you on ending the murder-fest in Iraq (I’m generally anti-murder), I’m not sure it will play out like you say. While it’s true that we’ll be spending less on the war, I’m not totally sold on the idea that the returning troops will be adding to the economy. Remember, that the main reason folks are in the army are because they’re too dumb/poor to do anything else. They’ll be likely be coming home shell-shocked, poor and unemployed. This isn’t like WWII where basically the entire male population signed up for the war. Our armed services are pretty much made up of the bottom of the barrel, despite all the jingoistic crap that you hear about being the best you can be.
Restoring sound currency and legalizing competing currencies may be our only way out of this mess. Coupled with reduced spending and living in our means, we might be able to right this ship once again. It’s probably better to buy gold than to put Federal Reserve notes under your matress. I think gold could easily hit $2000 an ounce once things really start to tank.
Fed -> inflation -> weaker dollar -> higher prices -> less spending -> recession -> Fed -> inflation…
Rinse and repeat business cycle until dollar crashes and country ends up in crapper. This is all you need to know.
A minor quibble with the article: The boss always gets paid, because he just fires people if it looks like he isn’t going to get his six figure bonus check this year, and the guy that runs the show always gets a 6 figure bonus check.
Here’s another solution….have an economy that actually produces something tangible….that your country will deserve better than recession.
Saving actually puts more money into the economy. Banks have more deposits from which to lend. Payments are more likely because savings levels are up to prevent as many defaults. Invested money goes into corporations which in turn develop new products/services/jobs. Spending helps too. Saving never hurt the economy.
The point is this: The economy is taking a nose dive, so we can either stay listen to the band as it plays on, or jump ship, figuratively speaking. If you decide to spend your money now, well, you’ll have less money then when you’re going to need it later. And you are going to need it! If you’re into stocks, you’re going to lose that too, unfortunately because the simple fact is that we are so seriously in debt as a nation that we can’t even pay back the interest (much less the principle) on the money other countries, like China, have been loaning to us. Our debt is increasing exponentially by the second because the base keeps getting bigger. It’s the same reason why human population is growing so much quicker now than it was just a few decades ago. A little over a century ago we only had a billion people on the earth. It took a couple of million years to reach that number. Now we’re pushing towards 7 billion in just the last 100 years. Because the base keeps getting bigger to add to the increase. That’s exactly whats happening to the national debt. It’s expanded beyond control and the only way we can conduct our day to day lives now is to print more money and go further into debt. That’s just simple economics!
Buy commodities stocks like RJA and DBA. They track the price of food. When all hell breaks loose and prices go through the roof at least you might have some protection. You should also have some gold and/or gold stocks like GLD and GDX. Gold typically goes up when the US dollar goes down.
This sounds remarkably like a much better article on today’s subprime crisis already posted on Digg and available here:
http://businessshrink.biz/psychologyofbusiness/2008/01/29/the-great-sub-prime-misdirect-an-insider-view-on-the-crisis/
Geordie you hit it right on the head! The reason we are in or at least nearing a recession is due to the decreased amount of spending. True, you shouldnt jump in head first and blow all of your money, but being scared and saving your money will only make your fears of a poor economic future a reality. Im still in college but from what I remember in macro- economics thats about the jist of it.
Here is an idea! How about everyone stops spending so much money on things they really dont need. Why get a New car every year. If you have a car that runs perfectly fine and is tuned-up time to time then you should probably stick with that car. The problem with our society is that everyone is in competition for the “BEST” And that means we all spend tons of money to stay up dated with everyone else. Why Cant we al just be happy with what we have. I would bet our economy would be a heck of a lot more stable if we didnt constantly consume. Now i understand we need to to consume in order to keep business and companies open but instead of always buying the next best thing, shouldnt we take that LOOSE INCOME and invest in a chairity or something. Just A thought everyone.
Matt
I really hate to disagree with you but our service men and women are NOT the “bottom of the barrell, dumb” people you seem to think they are. If it werent for these BRAVE people you would not be able to think the way you do because AMERICA would not be a FREE nation. 9-11 would not have stoped were it did and terrorism would run ramped through out the world. To bad you are not so brave as to stop that from happening!
SGT (and proud to be) in the U.S.Army
I also disagree with the statement that our soliders are the bottom of the barrel. My husband entered the service after he got a law degree because he wanted to give back to our country and believes in our freedom. If it wasn’t for men and weoman like him our biggest worry wouldn’t be about a recession. You say their the bottom of the barrel now but I wonder how you would think of them if war broke out and they were the only thing standing between you and the enemy.
