History of Recession Echoes in Today’s Recession

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Here in the winter of 2008 the economy is quickly slipping into a deep freeze. This time it’s different from the dotcom boom/bust early in this decade. This time it’s a banking bubble and the history of recessions shows that these bubbles bursting cause much more trouble.

In the late 1980’s, bad banking practices led to the early 1990’s recession which was rather deep. Likewise, the recession of the 1970’s had both bad economic policy and high energy costs driving it. Here in 2008, we have a perfect storm of bad economic policy, high energy costs and a banking bubble. It’s going to be a rough ride folks.

Researchers have found disturbing similarities between the current economic crisis and serious downturns in the past, including the Great Depression of the 1930’s and the Japanese financial crisis of the 1990’s.

Also, some researchers have noted that the behavior of some on Wall Street and even Main Street bankers have become detached from the economic reality. This is also a bad sign. In most previous financial crisis, the involvement of banking institutions was minimal. This time around they’re directly involved. This means this crisis will be quite bad for many.

How Bad Will It Get

Of course, it’s too late to change course now. The recession monster is dead ahead and there’s no way to avoid it since we’re already within it’s grasp. We’re facing the worst recession in over nearly 50 years, if not longer.

We can expect economic growth to decline at least 2% over the next 12-18 months. It is not out of the question that we might see a catastrophic decline of 5% or more that takes 3-5 years to recover from. Even the smaller downturn will inflict serious economic pain on small businesses and individuals. A larger collapse will be even more painful.

If you want to look on the bright side, consider that housing will become cheaper and that by 2012 everything will be rosy again. Good news, if you can survive the downturn and assuming that the government doesn’t do anything overwhelmingly stupid to hobble a recovery.

Will Aggressive Stimulus Help?

In a word, NO.

Even highly aggressive monetary and fiscal stimulus won’t be able to head off this economic disaster. It may ease a little pain here and there but there is no way to avoid the disaster.

Banks have to rebuild their capital. Housing has to reconnect with incomes instead of being unrealistically priced. Loan default rates have to stabilize. Businesses have to adjust their employment numbers.

None of these things will happen quickly. The only thing that will happen for at least a year or two is a few Wall Streeters will make a lot of money off the greedy and gullible.

The biggest thing you can do from your end in your small business is to avoid credit as much as possible.

This entry was posted on Friday, November 17th, 2017 at 8:43 pm and is filed under Recession. You can follow any responses to this entry through the RSS 2.0 feed.

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One Response to “History of Recession Echoes in Today’s Recession”

  1. Ivonna Humpalot Says:

    I hope this recession won’t turn into a depression.

 

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