Don’t fear the recession, understand it!
Recessions are scary. People lose jobs, retirements lose value, and the whole country seems to suffer. But guess what? Not everyone has to suffer in a recession. In fact, some people become wealthier during recessions! Why? Because wealth is never destroyed, it just changes hands. Will the wealth come to you or will you give it away? Here are 3 things you need to know to prepare for the recession…
What’s a Recession?
Recessions occur when the people of an economy stop spending money. They usually do this for fear of not having enough during times of trouble. If enough people stop spending money, the economy begins to suffer. Ever wonder why President George W. Bush asked America to “Go Shopping” after the 9/11 terrorist attacks? He knew that fears of more attacks could cause people to hoard their money and the economy would suffer. So what happens when people stop spending money?
Why do Recessions Seem Bad?
If people don’t spend money, businesses make less money. When businesses have less money, they can’t afford to hire new workers and many companies find themselves laying off current employees to cut costs and survive these times of reduced profits. Young people enter the work force looking for a job only to find that companies aren’t hiring. These new workers can’t make money, so they begin to save what little money they have. Wait, they do what?! THEY STOP SPENDING MONEY and the problem worsens. If this happens long enough, the economy is said to be in a recession. But there’s a good side to this…
Why are Recessions Good?
When companies have to lay off employees and cut costs, they become more efficient and improve their business practices. When they survive the recession, they find themselves in a better position to succeed and grow. Companies that don’t make the proper adjustments during this time are said to have poor business practices and they tend to fail during the recession and go out of business. While it’s sad to see businesses go under and people lose their jobs, this is an important part of our free-market system. Why? Because a recession forces businesses to improve. If they don’t improve, they fail, and competing businesses, that do improve, often get their customers. This means good business does better. When good business does better, they grow and they need to hire new employees. So eventually the lost jobs are recovered and the better companies thrive. As a result, the entire business industry improves. If this happens enough, fears about the economy will begin to vanish, people start to spend their money again, and the economy can recover. So are recessions truly bad? No! Our economy NEEDS recessions to remain healthy. Recessions help to improve our businesses!
What Can Help Stop a Recession?
To help stop a recession, businesses need to improve and people must spend their money again. There are ways to encourage this. One of the best ways, is for banks to change their interest rates. Why do interest rates matter? When interest rates are high, it costs more to borrow money and pays more to save it. So high interest rates make starting new businesses very costly. But saving money in a bank sometimes becomes a great investment because you earn higher interest on those savings. So high interest rates basically lead to less start-up business and more money savings. Did you catch that? Higher interest rates = more saving money and less business success; sounds like the start of a recession doesn’t it?
But when interest rates are lowered, people are not rewarded for saving their money as much, so they tend to spend it more. Also, entrepreneurs can start businesses for less money and they begin to borrow money more often. This spending and borrowing jump-starts the economy and helps to bring it out of recession.
You might think, “Shouldn’t we just keep interest rates low and avoid a recession all together?” Many people believe that’s the best move, but there are 2 MAJOR PROBLEMS with it. 1) People won’t store up for their families and 2) businesses won’t be forced to improve their practices. In short, the economy begins to be irresponsible with its money. So it’s important that we have times of saving and times of spending.
Historically, the US Market goes up for an average of 2.5 years before a recession hits. But today’s economy has been going up for 7 years straight! Is it possible that we are past due for another recession? If so…
Why Hasn’t the Recession Hit Yet?
In 2009, our economy began to recover from the 2008 recession. After 2.5 years of strong economic growth, we were on the brink of a new recession. Interest rates were high, so people began saving their money. Businesses braced for another economic downturn with haunting memories of 2008. People began selling their stocks and exiting their investments. The stock market showed signs of an imminent crash. But before it could happen, the Federal Reserve decided to “prop up” the economy when it forced bank interest rates down BEFORE the recession could start. With lower interest rates, saving money became less attractive, and people kept spending it. Because customers kept spending, businesses did not attempt to adapt and improve. New businesses could start- up, but there were no new customers left by other failing businesses. Why? These bad businesses were not forced out by a recession! So while new businesses could start, it was harder for them to grow, which makes an economic recovery very long and slow. The Federal Reserve was so worried about the political backlash of a recession, it did not do what was best for the economy and face a cleansing recession. Instead, it prolonged the inevitable. Now, there are too many people looking for jobs and not enough good companies to provide them. Instead, we have old stale businesses, that can’t grow, due to poor business decisions. This does not bode well for our economy. So what does this mean?
Is the Recession About to Hit?
The recession will hit, when people stop spending their money. This will cause businesses to do the same as they lay off employees, reduce costs, and improve their practices. Then we will find ourselves in the next great recession. So how close is the next recession? Consider what causes people to stop spending money…fear. Now ask yourself, “What about our economy is there to be afraid of?”
Due to unemployment, millions of Americans are stuck at home without a way to make money. We have seen an entire country break ties with its European Union when Britain declared its “Brexit.” (or Britain-Exit). We even have many Americans, unhappy with USA’s current policies, who want to see their state make an “exit” of its own. Terrorism is rising on a global scale with the Islamic State shouting “Death to America!” Racial tensions in America have worsened with the controversy of the Black Lives Matter movement and the All Lives Matter response. Police officers are being executed in our streets. There is division everywhere and where there is division, there is fear. Could the recession be hitting soon?
How Can I Prepare for the Recession?
Now that you understand what could cause a recession, you may be wondering what you can do to prepare for it. Could you sell your investments and put your money in the bank? Yes, you could. But, if you do, you might fall victim to one of the biggest traps of all, inflation. Inflation means your money loses value over time. Losing value means losing money. Do you want to lose money for a year, while your money sits in a bank? That’s how long the 2008 recession lasted. Can you see why so many people fear a recession? It seems like a lose-lose situation. It seems investing would lose money due to the crash and saving would lose money due to inflation. But actually, there is a way to make investment money, even if the stock market crashes! Why? Because wealth doesn’t get destroyed, it just changes hands! You can be sure, it usually ends up in the hands of the people who are prepared for it. The good news is, by reading this and understanding what a recession is, you’ve already taken the first step toward being prepared…
Now you just need to know how to find opportunities for the money to end up in your hands. This requires investment knowledge. To begin learning how to invest in a market crash, look for my article called “Trading Through the Crash.” In it, I cover basic principles that make earning money, in a market crash, possible. Watch your email for part 2 of 2 in the Recession Survival Series.
To learn more, go to TRADEway.com and check out the live learning events. We offer a money back guarantee and it could be the education you need to change your life and help you prepare for a coming recession.