Another recession is on the way. I can say that with near certainty, but no one can predict when it will come.
Most of us have painful memories of the 2008/2009 recession. Jobs were lost, homes were lost or had their value destroyed, salaries were cut if you were lucky enough to keep a job and all the markets plunged. Many had to postpone college, retirement or moving out of their parent’s homes.
That recession caught many, if not most, of us by surprise. It seems to be human nature to ignore the negative when things are going well. Why fix the leaky roof when it isn’t raining?
I sense a growing complacency in the population lately. Gone is the focus on frugality; building up an emergency fund; growing multiple streams of income; paying down debt and etc. The sun is shining, the economy is growing, the future is rosy, why worry.
We once again are immersed in the day to day doings of our individual lives – writing that next post, getting the kids to soccer practice, planning the next vacation, etc.
Why do I think another recession is coming?
History tells me it will come.
Mike Patton, contributor to Forbes, stated in Is Another Recession Looming?
“In the post WWII era there have been 11 recessions which equates to one every 5.9 years.”
Seems we are overdue by a few years!
The stock market has been wavering.
After steadily rising for 5+ years, the stock market indexes have been bouncing between pretty specific ranges for most of 2015. My (definitely non-professional) opinion of this is that we are on the verge of a major movement – and I think it will be downward.
The Fed will tighten money supplies.
Because the Fed has pretty much used up the tools at its command trying to bring the US out of the 2008 recession, they are eager to start tightening money supplies. With interest rates remaining this low and money supplies this high, some experts believe another recession would be much worse than the 2008 one, because there are few tools left to use to manage the economy.
Bill Conerly, in Forbes article: The Next Recession: Cause and Timing explains how Fed actions could trigger a recession:
” If the Fed is late to drain reserves, then a galloping expansion triggers inflation. The Fed finally sees that it really has to stomp on the brakes to prevent the economy from overheating. The result is a cycle of inflation followed by recession, just like we experienced in the 1970s and early 1980s.
However, if the Fed acts too soon, it stops the expansion before trouble begins, causing an unnecessary but mild recession. Then the Fed will reverse course, injecting more stimulus, and putting the economy at risk again.”
We are in a world economy.
Even if one country avoids causing a recession, world economy or world events could trigger a global downturn which would affect many if not most countries.
What am I doing to prepare for the next recession?
Probably what you are doing – not much. However, I hope that we are at least somewhat positioned to make it through.
We have several income sources (none of which involve an employer). We have zero debt. Our life style is fairly inexpensive, but we could cut more corners if we had to do so. We have plenty of liquid assets (mainly because we refused to invest in bonds or stocks at their current high prices). We own two properties outright. We have emergency supplies of food and water. We have real assets we could use for barter if push comes to shove.
What should you do to prepare for the next recession?
I’ve lived through many recessions since moving out of my parent’s home 43 years ago. Some of them I didn’t even notice – they didn’t affect me. Others touched but didn’t harm and some harmed, but only temporarily.
Have faith in your ability.
You made it through the 2008 recession. You can make it through another.
If you are still working, tack on some more skills, just in case yours become unwanted or unneeded. Add more types of income (putting family members to work, taking on a second job, starting a side gig or whatever you can manage). Check the way your assets are allocated to try to balance them so that when one asset class drops in value, another goes up.
Beef up the emergency fund so that you have enough to support your family’s needs for a year. Buy a few non-perishable food items each week at the store so that you aren’t totally dependent on the food network. Fill that camping water jug with water and store it out in the garage or find a way to provide fresh water for your household for a few days if needed.
Do you think we are all overdue for another recession? How will you prepare?