As the recent recession illustrated so well, the world is sometimes not a very nice or fair place. Most of us were caught unawares--and paid for it.
Yet there are some very obvious ways to avoid the meat-grinder. Although the context differs with each recession . . . there are some important clues to assist us in the future. Robert Samuelson laid out a quick and dirty template for building awareness--a template for assessing the potential for recession and recovery.
Despite differences, all recessions share certain characteristics. One is the role of economic “imbalances.” Something in the economy goes to excess, and the “correction” depresses production, jobs and incomes. Inflation rises, and so the Fed quells it by increasing interest rates. Or companies overinvest in factories and office buildings; investment spending collapses when the surpluses become obvious. Or stocks reach artificial highs — and then crash.
Samuelson doesn't stop there. He goes on to describe recoveries.
Recoveries begin when the imbalances are overcome by the passage of time, other forces in the economy or government policies. This is happening now to three huge imbalances that abetted recession: consumer overspending (an imbalance between household purchases and incomes); the trade deficit (the imbalance between exports and imports); and the housing “bubble” (the imbalance between home prices and people’s incomes).
Oh yeah, Samuelson points out that though it may not feel like it to some of us, the recovery is well under way. Indeed, the April unemployment rate in my home state of Minnesota is down to 6.5 percent. The traffic at my local mall reflected that rate this weekend--the parking lot was almost full.
To read the entire article, check the link above.