Recession in 2020: Hoax or Real?

All this talk of recession in 2020, freaks-out many ordinary people. President Trump, our stable genius, thinks the U.S. economy is strong! Many key numbers tell a different story. Inverted yield curves, the Dow at the dizzying heights (of 28,000) and trade wars have confounded economists. In August 2019, a survey of 226 economists conducted by the National Association for Business Economics had the following results:

·       38% of respondents believed the U.S. will be in recession in 2020;

·       34% picked 2021; and

·       14% it is after 2021.

July 2019 marked the 121^st consecutive monthly expansion of the U.S. economy – longest period of uninterrupted growth (no thanks to Trump!).

As pundits and experts argue there are some points we need to know whether recession is on the way or otherwise.

1.       What is a recession?

          Recession is two consecutive quarters of negative growth (GDP). For the U.S., the NBER determines the recession or otherwise.

2.       What happens in a recession?

          Jobs disappear, unemployment spikes, businesses close, property prices crash, stock prices tumble and the spiral continues until Keynesian measures are introduced.

3.       What’s with inverted yield curve?

          Inverted yield curves have preceded all nine recessions in the U.S. economy since 1955. So what is it? Normally, investors expect higher yields on longer-term bonds. But when yields are higher on short-term bonds than the long-term counterparts, the yield inverts. That’s a sign that people are worried about the economy’s health. The San Francisco Fed in a research paper in 2018 said the inverted yield curve is “strikingly accurate” record for forecasting recessions.

4.       How do I prepare for a recession?

          Look at your saving habits for unexpected events, such as medical emergencies. So have at least six months liquidity to survive. Second, restrain purchase on impulse which cannot generate income or value. Third, re-calibrate monthly expenses so that those fixed items (food etc.) could be sourced from cheaper outlets. Fourth, divest some stocks or assets that you could re-purchase when values have fallen 40% or more. Fifth, and most important trust in Him and don’t despair – recessions too will end.

         

References:

1. US unlikely to avoid recession both this year and next:  Mohamed El-Erian (www.economictimes.indiatimes.com, Jul 3, 2019)

2. When Mohamed El-Erian speaks, Wall Street listens – and he says a crash is probably coming (www.mobile.abc.net.au)

3. Should I Be Freaking Out About All This Recession Talk? Jay Willis, (www.gq.com)