The headlines are starting to pop up – Recession! Now that the word is on the lips of the average American, and after an interesting debate last night with someone about whether working-class people are working too hard and making too little to spend time and money on learning how to be better with their money, and subsequently, who’s fault is it that these people are struggling and will struggle in the future (the President, The Fed, Congress, Hoffa?). And it started from wondering why regular people aren’t warned about recession by the government.
There are so many points and debates to consider from the above paragraph, but let me focus this entry on simply how you could have known a recession was coming – and what to do about recession on a personal scale. Furthermore, maybe I’ll even be as bold to make a suggestion as to how this country could lessen the impacts of recessions (I’m not quite certain we can stop economic cycles – but maybe we can try to avoid total boom/total bust).
Here are some warnings you might have noticed over the past few years that might have caused you pause:
1. the market flies up and in NASDAQ’s case almost 100% in a year – then falls off a cliff after you saw your friends with no market experience get taken to the cleaners and wiped out.
2. So you thought that whole episode was suspicious, but you didn’t necessarily equate the collapse of the market as a recession indicator. Ok fair enough – I don’t think I necessarily equated that crash with deep economic troubles – but maybe you were more clairvoyant than I – so maybe you did think that. BUT, if you didn’t, then maybe you noticed the increasing real estate frenzy. You saw some friends (always your friends, never you 🙂 ) buying real estate, then buying again and again – ok – then you saw them take ALL of their home equity to pay off credit cards they charged up and to make additions on the home or put in a $50,000 kitchen). And THEN you saw real estate amateurs go to Florida and try their hand at flipping vacation homes.
3. Perhaps maybe now, you got suspicious with the liberal use of the housing ATM (fun way of describing using home equity as ‘free’ cash) and thought that maybe there might be trouble in the economy. Since your home value was not rising anymore, and your 401k was getting a bit shaky, you STARTED to REALLY notice what you were paying for things. I got laughed at in a class at BU (where I got my MSIM) in Jan. 2005 because I pointed out that the price of cheese had about doubled in 2004 (got that info from my high end research service that I consult – my friend the pizza store owner – gosh you need to be rich to get good research right?)
With your pizzas now costing over $10 for a large (remember large cheese pizzas for $7 or $8?), milk doubling in price, food prices up (due to transportation costs and the ethanol boondoggle -more on that later – what a bunch of fools), and oil and gas prices high, you are noticing inflation. So now you are really seeing a hint of recession – especially if you remember the 1970’s. I firmly believe though that this time, our Federal Reserve, which many believe caused the stock market and real estate mania, has no power over inflation now. That is another thought for another time so I won’t go on about that. Bottom line is, now everyone can see a problem.
So maybe you could see it coming, maybe not – what could you do to protect yourself? What can the government do? Find out in my next post…
See further thoughts about this that I made on LinkedIn here: