I recently read an article describing what might happen should we fall back into a recession. While expectations are rising (note today’s job report) we aren’t there yet and very well could continue to see economic growth, however slow. I’ll try and summarize the article here, but if you would like to read the full article, visit the Motley Fool investment website (fool.com). I don’t know that I fully agree with all of their conclusions but it is worth a discussion.
Basically, the article discussed four things that we should keep in mind should we face a double dip recession.
The first point, “The levers are all pulled” discusses the standard remedies for recessions. Interest rate cuts, infrastructure spending, extending unemployment benefits, and other actions designed to create jobs and spending are the normal strategies. Unfortunately, all of these tools are either currently being utilized or have been recently. Other strategies could be employed but likely face stiff opposition by either Democrats or Republicans and therefore are basically off the table. As the article points out, we need more demand – for credit, housing, etc. before the economy will noticeably improve.
The second point, “It might not be that bad” discusses the impact of the double dip and how it might not be as bad the second time around. The banking/financial sector is in better shape, housing prices are closer to the bottom than in 2008, and consumers and businesses are in better shape. The point is that the depth of another recession may not be as deep and it may be easier to come out of even if we don’t have as many “levers” available. I might argue that if we do enter another recession, consumer confidence might hit new lows which could extend or deepen the recession.
Their third point, “Definitions don’t matter” discusses how we have been impacted by the 2008 recession and our current situation. This is more of a personal discussion as it is likely more important to determine your personal situation (are you employed, what is your debt situation, are you able to make your mortgage payment, etc.) than to be concerned over the larger economy. Definitions may not matter to you personally if you have lost your job or home.
The final point, “Recessions bring opportunity” discusses investing opportunities during the depths of previous recessions. Remember the saying “survival of the fittest”? Well, that is an apt description of what can happen to business during a recession as weak companies are forced out of business or to sell to their stronger competitors. That makes for better investment opportunities and stronger businesses once the recession ends. It also forces consumers to pay down debt (seems to be happening) which should put them on better footing to begin the spending process again.
As the article ends they make a potentially great statement: “most of what makes today’s economy great has roots in a past recession.” Let’s hope that rings true without having to fall back into a recession now.
Do you think we are on the brink of a double dip recession? Why or why not?