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Recession Prep

Terry Savage, Tribune Content Agency on

It’s time to stop debating the definition of recession and start preparing. We have had economic slowdown warnings from the Federal Reserve and from economists and television financial pundits. And, if that wasn’t enough, last week’s announcement by FedEx that its shipments were slowing and that it expected a global recession certainly burst the optimists’ bubble.

The official definition of recession is two consecutive quarters of negative gross domestic product. Actually, we have already met that technical definition, with declining GDP in the first two quarters of this year.

But it hasn’t “felt” like a recession up until now. Employment has stayed strong, and workers are still in demand. Interest rates have been rising impacting mortgages, but we haven’t seen a rash of home price cuts or desperation on the part of home sellers.

In short, there hasn’t been a lot of headline pain. Now all that may be about to change. The Fed has a larger challenge in front of it than many expected. Inflation persists — requiring them to increase interest rates, slowing the economy even more dramatically.

And there’s one other element at play that could make this recession more difficult to navigate. The entire world seems to be sliding into recession slightly ahead of us — especially China, whose economy has been impacted by their fight against COVID-19. Europe is hiking interest rates to fight inflation, and facing the hardship of a cold winter if Russia turns off the natural gas pipeline.

Our current environment and our most recent experiences have dulled the fear of recession and lulled many into complacency.

 

The financial and mortgage-driven crisis that started in 2008 has faded from memory, unless you were one of the many who lost their homes. Similarly, the bursting of the dot-com bubble around the turn of the century is memorable only for the impact on investors who valued “eyeballs” over profits.

Those slowdowns were dwarfed by the pain of the double 1980-82 recession that was caused by the Fed trying to wring inflation out of the economy by raising interest rates. The entire economy went into a tailspin that cost millions of jobs across a broad swath of the country. Since that occurred 40 years ago, the memory of recession pain has diminished with time.

Our most recent experience with potential recession occurred at the start of the pandemic in 2020 when the economy shut down abruptly. But that pain was alleviated by the immediate doubling of unemployment benefits and distribution of stimulus checks and PPP loans.

The government bought its way out of that recession. Now it doesn’t have that leeway — as the Fed won’t be willing to create new money to keep interest rates low and the economy growing.

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