Why You Need To Brace for A Severe Economic Recession

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Now is the time to save every dime

Conventional wisdom holds that the current economic shocks happening to the economy as the result of coronavirus will be short-lived.

Others have suggested that – almost miraculously – the economy will towards “strong growth” in the second or third quarter of this year.

Have you heard these things?

Well, I hate to break it to you, but, that kind of happy talk defies commonsense. Major arteries of the economy have been rapidly shut off, including travel, entertainment, dining and, the service industry (just to name a few).

The painful result has been massive layoffs, including many who fall into the category of white-collar workers. How many people are we talking about? Try over three-million.

But that is just the tip of the iceberg, according to some experts. In her most recent podcast, personal finance guru Suze Orman is suggesting unemployment may reach as high as 30%.

Should something like this happen, which is very possible, we will surpass the unemployment numbers seen during the height of the Great Depression in 1933.

Why “bouncing back” is a fantasy

For the economy to bounce back to pre-March (2020) numbers requires massive amounts of magical thinking. Examples include an instant discovery of the COVID-19 vaccine and then immediate mass distribution.

That’s just not going to happen this year. I wish things were different, but we know scientifically, it’s not going to play like that. The soonest we can expect something positive is the first quarter of 2021 (and that is a BIG if).

That said, a possible treatment for COVID-19 certainly could occur, given the number of drugs in testing. But even then, it takes time to verify the safety of such drugs because they must go through a rigorous testing process.

All of this is to say that the Coronavirus is going to be with us for the foreseeable future. This means social distancing will continue – in some form or another – for the rest of 2020. Sure, the virus may dissipate in the summer months but that does not mean it completely goes away.

And we already know that COVID-19 will likely return in the fall. In looking at the 1918 Spanish flu, the same pattern emerged where the virus was strong in the winter and spring and then briefly subsided, only to return with a vengeance in autumn.

Yes, rapid testing to determine who has already been infected will help. But this will require the manufacturing millions upon millions of tests. It will also require all of us to get a test.

That takes lots of time folks.

Now is the time to save money

Consumer Spending

Strong economies are driven by confidence. This translates into higher consumer spending. The opposite of confidence is uncertainty, which is fueled by fear.

Given the current dynamics, can anyone argue that fear and uncertainty won’t be part of our reality for the rest of the year?

When fear is strong, people don’t spend money. This means companies don’t hire because demand isn’t there. For example, United Airlines has already stated they will likely lay off employees -even after the bailout – because they don’t think folks will be flying.

All of this has a domino effect on various segments of the economy. We’re talking housing, retail, construction, entertainment and so forth.

Even is social distancing is lessened in some parts of the country – or for certain months of the year, consumer confidence will be flat.

Think about it. Are you really going to buy a new car or a new home when you don’t know if you will still have a job?

Why you need to save

In listening to Orman’s podcast, she is actively encouraging her listeners to save every dime they can get their hands on. She’s also telling listeners not to make any big purchases for the foreseeable future.

If you get a $1,200 stimulus check, she is strongly advising that you bank it. This will likely be the default position for many people because they won’t have a job.

If you think your job is secure, you really need to rethink this position. We know from previous downturns that there’s no such thing as a recession-proof job.

Think you will live off credit cards? Think again. We are already seeing reports of banks tightening credit. This means at any time, your bank can yank your credit card because they think you are a risk.

Again, this is why it is essential for you to conserve cash.

If you trust Orman, follow her advise and avoid retail-therapy online during the lockdown.

Instead, start pushing money towards your savings – heavily.

About Andy Seaborn 27 Articles
Andy Seaborn is a Seattle based freelance writer who blogs about relationships, parenting and men's issues. When he's not writing, he's usually spending time with his family outdoors. Look for pieces that focus on a variety of topics.