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Can a recession ever be a good thing? No. Full stop.

There’s a Storm a’Comin’: What We Know About the Next Recession

A foul wind’s a’blowin’! There’s evil in the air! A recession is a’brewin’ and you need to be prepared! 

-From “Pay Off Them Debts Before the Recession Comes,” by Piggy Smalls featuring The Kitty Kat Kid, new from Bitches Get Riches Records

Last week we put all your pre-recession fears to rest by explaining how you can arm yourself with strong financial decisions before the next recession comes. To recap:

  • Track your spending. You’ll feel less anxious and more in-control if you have a clear picture of your needs.
  • Fatten up your emergency fund. Let your level of risk set the size of your emergency fund.
  • Pay off as much debt as you can. This will give you more flexibility with your money and reduce your expenses overall.
  • Get a credit card or increase your existing credit limit. Credit freezes up during a recession, so get it now while you still can. Yes, credit is scawwwy and can be misused—but it is a tool that can instantly put food on your table.
  • Get your health in order. Avail yourself of healthcare access while you have it, and stock up on needed prescriptions.
  • Identify areas to cut back before you have to. The less money you spend every month, the less money you need to get by. The less you need to get by, the easier it’ll be to pay your bills if you lose your source of income.
  • Broaden your skills. Start doing whatever you need to make your resume stand out in a more competitive job market.
  • Back up your work files. You don’t want to lose potential portfolio pieces.
  • Stay the course. Don’t freak out and pull your money from the stock market.
  • Be kind. A time is coming when we’re going to have to depend on each other. No one wants to help out an asshole when times are tough.

So praise be, we know what to do! But what exactly is going to happen? And when?

When? How?? Why???

A survey of professional economists from this October says that the next recession will begin at the end of 2020 and largely affect the public during 2021. We’re inclined to believe them.

As to why it will happen… no one quite knows! The New York Times hypothesizes three potential culprits:

The poorly-timed end of fiscal stimulus

If the Federal Reserve Board (“the Fed”) miscalculates interest rate policy, similar to what happened in 2008, it could cause a recession. Think of low interest rates as the gas pedal on a car, and high interest rates as the brakes. You need to use both to drive, but using them at the wrong time causes accidents.

Of course, federal monetary policy in general is a strong contender for the throne of Recession-Causer. In 2017, the Republican government cut taxes on corporations. While this gave the economy a bit of a boostie, it was less than expected, and the positive effects will fade sometime between 2022 and, uh, now. What’s more, the plan was structured around future tax hikes to lower and middle class Americans. All of these factors working in concert make it an especially bad combination.

A corporate debt bubble

Debt bubbles like the dot com boom of 2001 and the subprime mortgage crisis of 2008 have traditionally caused recessions. So what’s getting bubbly? What’s starting to boil?

Corporations, like people, can hold debt. Right now they’re holding a lot of it. There are about 30 million businesses in America, and they currently hold 9 trillion in debt. For comparison, there are about 325 million people in America, and they owe a collective 13 trillion in debts. Think about that and you’ll realize why people in the finance space are predicting a recession.

The plot of Star Wars Episode I: The Phantom Menace

That is: trade wars!

Quickly, what is a trade war? It’s exactly what it sounds like! Two countries try to harm each other, but instead of bullets, they use trade regulations. It’s exactly as Phantom Menace depicted it: boring, hard to understand, ruins everything.

At time of writing, the United States and China are trading like two extremely wealthy, extremely nasty, about-to-divorce parents on opposite sides of a twenty-foot dinner table. China is America’s #1 biggest trade partner, so it’s a big deal. And it doesn’t help that our president is actively picking fights with #2 and #3.

Across the pond, Britain and the EU are also trying to negotiate the terms of their divorce. Britain has been negotiating with something less than unity and poise. A no-deal Brexit would cripple the English economy. The volatility of these situations challenges the stability of the entire interconnected global marketplace. So that’s pretty bad.

It’s unlikely these trade wars will lead to the rise of a brutally fascist intergalactic empire ruled by a cloaked religious zealot, but stranger things have happened! Maybe start buying stocks in cloning technology?

What the hell is going to happen, anyway?

Recessions, like forest fires, happen all the time. The economy is cyclical, after all, so this is bound to happen sooner or later. Perfectly normal! And as we’re almost a decade into the second longest economic expansion in U.S. history, we’re fucking due.

It probably won’t be as bad as 2008. That was not a normal recession. Things like the Great Recession of 2008 and the Great Depression of the 1930s are generally more spread apart than a normal dip in the economy and stock market.

The economy regularly expands and contracts according to factors like the gross domestic product (GDP), employment, and interest rates as determined by the Federal Reserve. An expansion is when everything is going super well for the economy! A contraction is when productivity declines, business revenues go down, and companies lay off workers. Unemployment rises so consumers spend less money.

That’s what we have to look forward to in the next recession.

The people who’ll be hit the hardest by the coming recession will (of fucking course) be low-wage workers at the mercy of large corporations looking to tighten their belts in order to avoid losing profits. They might get their hours cut or be laid off entirely as the company institutes austerity measures. (Note: corporate austerity measures rarely seem to involve pay cuts for corporate leadership. Just the people who make the donuts.)

Property owners might also be hit by the coming recession. During a recession, housing costs could plummet and interest rates rise, meaning anyone trying to unload a house will be shit outta luck. And if you lose your job due to a recession… you’re still on the hook for your mortgage.

Can a recession ever be a good thing?

No. Full stop.

“But what if I—”

Savvy investors and the financially solvent (which, let’s not play, includes your humble Bitches) may be able to turn a recession to their personal advantage. Much e-ink has been spilled about just how exciting an opportunity a recession can be to those of us who understand and have the means to buy low and sell high when the walls come tumbling down.

But during the last recession… people died. Families lost their homes. Small businesses had to close and people lost their jobs and retirement accounts melted like Nazis in the presence of the Ark of the Covenant.*

And no matter what you think of the people who will be negatively affected by a recession, it is my fervent hope that you are human enough to have compassion for their plight.

If instead you’re celebrating the approach of a recession because of how you might personally benefit… kindly grow a fucking soul.

How worried should we be?

If you’ve made your plan and taken steps to safeguard yourself, you shouldn’t be too worried.

As is true for anything concerning money, a little caution is always a good idea! But there’s probably no need to board up the windows and stock up on ammunition.

Personally, I’m not concerned for myself. My husband and I have a healthy emergency fund, a great credit score, and solid employment. Aside from the mortgage, I’m debt free (good riddance, student loans). I have multiple side jobs and marketable skills, so if I lose my job, I know I’ll still be able to bring in an income.

As far as my investments go, I’m planning to leave them alone and ride it out. I might lose money, yes, but historically speaking, the stock market has always recovered.

It might be a little safer to switch some of your stock investments over to bonds before a recession hits. If you’re a savvy investor, you can then buy stocks when the market plummets and stocks are cheap. In fact, if you’re not ready to start investing yet, it might even be a good idea to save your money and invest it during the recession when stock prices are low. Here’s how all that works:

*To whoever runs the giant warehouse containing the Ark of the Covenant: now would be a good time to whip that Nazi-melting thing out.

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14 thoughts to “There’s a Storm a’Comin’: What We Know About the Next Recession”

  1. So much truth.

    If we remain fully employed by our current employers for the next 3-5 years, we’ll weather a recession just fine and perhaps even make some savvy investments. But I know we’re just a couple of job losses away from hanging onto the shingles with gritted teeth because we aren’t yet up on the good side hustle life. And that’s from people who work hard, save harder and invest hardest. We don’t play with our money but we know our vulnerabilities in a downtown. We can also imagine how much worse it’ll be for those who are less well employed or have had less time or ability to save. May this next recession be as low impact as it possibly can be. I know lower income people who were planning on retiring into the expected recession timeframe, and it’s unnerving as all get out if they need their investment income to live on starting from, oh, end of 2020.

  2. I really liked this article (hell, I like everything you two write) but may I just correct this teensy tiny pet peeve of mine: While a No-Brexit deal would cripple the English economy, it will also most definitely cripple the British economy (which does encompass like three more countries). Sorry, pet peeve rant over, I’m just traumatised from all the people saying I lived in England when, in fact, I lived in Britain, the Scottish part.

    1. I was going to call them out on that too – fellow Scot here! Also a big fan of the Bitches! I live in France and I hear “Brexit” and then “England, England, England” in the same breath all the time in the media. Not just during Brexit coverage, but any time they talk about “my country”. It hurts all the more seeing as Scotland was overwhelming against Brexit. Anyway, I can’t even bear to look at the Brexit coverage and I don’t even live in the UK anymore…

        1. You’re sad, I’m mortified that I went on a rant/whinge as I thought my nation had once again been amalgamated into “England”. And the joke is still to subtle for me. But I was pleased to discover a Monty Python clip I’d never seen before!

          1. This is why you don’t read BGR on public transport. The one time I don’t follow the links in an article and it bites me in the bum. Consider me chastised and mortified. 🙂

  3. THANK YOU for reminding everyone that a RECESSION IS NOT A GOOD THING!! That’s not heard enough in the PF community where Recessions can help us build our personal wealth, so they’re not seen as evil. Except that for some lower income families, THEY ARE. I really appreciated that reminder. 😀

  4. Glad you pointed out that we need to remember that the recession has real impact on real people. I think it’s too easy to lose sight of that when you’re thinking about homes becoming cheaper (potential rental properties, right?) and stocks being uber-buyable (the technical term, obvs). It’s too easy to think about how those of us in stable positions will benefit and forget about the real devastation these recessions cause. I know I can be guilty of it at times, so thanks for prodding me a bit.

  5. So, recession happiness is obviously cruel (or perhaps just self-centered), but I don’t really feel bad about pure stock market declines, untethered to any fundamental economic weakness. Due to the concentration of equity holdings among the already-rich, there really aren’t any “victims” here. Since all investors, regardless of economic percentile, need volatility to gain the most benefit from equities, I see these sorts of fluctuations (like what happened in December) as positive events. The uber rich are still fine, despite any dumb day trading or overreactions, while those farther down the ladder gain from the chance to buy at lower prices. Am I missing something from an ethical perspective (again, emphasizing that I understand that recessions are a completely different story)?

    1. I think I hear what you’re asking, and this is a common blind spot. People talk and write with a pretty obsessive focus on investing to make money. But they say very little about what happens after the finish line: the time in which you begin to draw down those investments. If investing is a roller coaster, everyone must get off at some point. Some people get to choose their exit point, and some don’t.

      Let’s say you’re on the older side. You’ve worked hard all your life, and you have a million dollars in investments to retire upon. Now let’s say the market crashes, and your investments are now worth half of that. If you’re forty or fifty, you might stress, but you have time to recoup. (You may even double-down, knowing you’re buying low and will have time to sell high.) If you’re sixty, you might decide to keep working and delay your retirement. But if you’re in your seventies or eighties or beyond, you may have no choice but to suffer that incredible loss. The realities of aging may be such that you can’t keep working, or go back to work. And you realistically may not live long enough to see the inevitable rebound. Those people are fucked by market fluctuations in a very real way.

  6. Great job!!! I cannot stress enough the importance of an emergency fund. That is why I decided instead of a 3 month one I would have a 15 month FU fund..err uh I mean EF for rainy days. And rainy days do come my friends.

    I really like the one about credit cards. It was a Bill & Ted moment for me when you said that one. “Listen to this guy Rufus, he knows what he’s talking about.” LOL Yes, listen to Kitty and Piggy. For they hold the crystal ball to help you recession proof your finances and your future. The best time to ask for credit is when you do not need it. Credit dries up faster than nail polish when a recession happens. I asked for like $40k in credit over the last several years and got it! Do I need it? No. But it’s there just in case.

    And my favorite advice is to be kind. People are usually willing to help you when you do the right thing. And I always return a favor.

    Just my 2 cents.

    Thanks,
    Miriam

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