How Bad Will This Recession Be?

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As most people are well aware of now there is very little doubt that we are at the start of a very serious economic downturn. Some economic forecasters sometimes paint a rosy picture of a mild downturn but, when we start looking at the cold, hard, facts, it becomes apparent that patterns that were present in other major economic downturns and recessions, and yes, even the Great Depression, are present in today’s economy.

It all started with the housing credit crunch and recession that began in 2006. This downturn in housing is perhaps the worst since the Great Depression in the 1930s. What’s more, things are very likely to get much, much, worse before they get any better in this sector.

Of course, there is a lot of other economic data out there to be properly analyzed. In the most broad terms, the gross domestic product, the total value products and services sold, is used to determine the amount of damage done to the economy by a recession. However, it is usually only an indicator after the fact, not during the midst of the recession like we are right now.

Given that the GDP has shown very sluggish growth over the past few months and couple that with poor employment numbers it is very likely that we will see negative growth for the first quarter of 2008. Given historic trends based on previous recessions, numbers like we are seeing indicate that the ongoing problems in the credit markets and the inadequate response by the Federal Reserve will cause negative growth for all of 2008 and, most likely, well into 2009 as well. In short, we should expect 18-24 months of recession.

When coupled with the inflation caused by the Fed’s money policy, this recession promises to be the worst recession in decades. The last recession, the 2001-2002 dotcom bust, was mild and shallow by historic standards. The current recession’s trends indicate something else.

To give you a taste of what things will be like in the next 2 years, let’s take a look at the two major recessions that caused economic grief in the 1970’s and early 1980’s.

The 1980-82 recession featured an unemployment rate to 10.8 percent. That is twice what the unemployment rate is right now. From a small business perspective, consider the impact of a drop of 7.8 percent in your business income. That’s how far the GDP fell in the second quarter of 1980. Could you deal with such a drop in your business?

Do you know when the worst recession since the Great Depression was? It happened between the fourth quarter of 1973 until the first quarter of 1975. During that time of recession in the mid 1970’s the GDP dropped just over five percent while inflation raged around 12.3 percent. Not only did this recession destroy many small businesses but it also wiped out investment income as the stock market lost almost half its value.

My prediction is that we are headed for a time comparable to this period of recession in the 1970’s. We will be faced with a huge economic downturn coupled with double digit inflation. Are you ready for that kind of economic storm? You had better be if you want your business to survive.

But, let’s not forget to look at the big boy of economic downturns, the Great Depression of the 1930’s. During that period the GDP dropped by 25% and the stock market lost almost 90% of its value. By some measures, the US economy didn’t fully recover from this economic downturn until the mid 1950’s. Are we in for this bad of an economic disaster? I don’t think it will get that bad but it could easily become something in between the 1970’s recession and the Great Depression. If it does, it will hurt a lot of people.

When we look at the ominous trends, it is becoming increasingly obvious that we are at the start of what promises to be a very severe recession. The recent rise in the inflation rate coupled with the drops in the stock market, employment and value of the dollar point to severe economic problems. Federal Reserve Chairman Ben Bernanke has recently mentioned that he expects bank failures in the near future.

It will be a bad storm. Be prepared for it.

This entry was posted on Wednesday, December 6th, 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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