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We’re In A Recession
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The National Bureau of Economic Research has determined that the United States economy has been in a recession since December of 2007… this really comes as no surprise to most people. In fact, last October, I wrote a post outlining what I think one should do during a recession and that one predates the technical start of the recession by a good two months (here’s what you all said when I asked whether we were in a recession last August). If you boosted your emergency fund starting then, you would’ve had a two-month head start on the recession! The lesson from this? Believe me! (Ok ok, I’m only kidding, I can’t see the future and I’m probably wrong more often than I’m right on about everything)
Since then, I’ve been focusing a lot more of my articles on frugality (such as 100 money saving tips and 11 tips to save on shipping) because I think frugality is the way we can get ourselves, individually, through this economic slump. More broadly, we need people and businesses to spend money so the economy recovers but individually, and this is selfish advice, you need to have a bunker mentality and save your way through this.
Stick that money in your mattress, a high rate CD, or a plain old online savings bank… until the clouds roll past anyway.
(Photo: bobjagendorf)
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OK, I’d advise against the mattress as that makes inflation really hurt. Plus when the economy needs a boost, what it really needs is a bunch of saved money “hard at work”. This typically means putting it in a bank / investment account of some type so that it’s still part of the economy somewhere.
We’re likely looking at a long inflationary recession. That’s where inflation is at 10% and your investments are only earning 7% (or something like that). Cash under the mattress will lose purchasing power at 10% / year. cash in the banks will only lose purchasing power at 3% / year.
I think the biggest problem this country has is that the people are so irrational. Instead of staying consistent and being frugal and saving all year round, they spend way too much when the money is flowing and only begin penny-pinching when the times are tough.
By the standard definition of a recession (two consecutive quarters of GDP contraction), we’re not officially one one yet. 2008Q2 actually showed growth. 2008Q3 did contract, so if Q4 does as well (we’ll find out in 2-3 months), then we’ll know whether we were in a true recession. But if you consider that our GDP growth was less than inflation, we actually did shrink even though the number grew.
Bah! Macroeconomics is fun, but hard to wrap your head around sometimes.