With the United States economy surpassing its 100th month of expansion at the end of last year, experts’ predictions of a coming recession are becoming more pronounced than ever. This may be surprising to some casual observers who might be inclined to see the four-percent unemployment rate or record-setting bull market in stocks as indicators of strong economic growth. However, focusing on these currently strong metrics would be an exercise in ignoring the intrinsically cyclical nature of the economy. To delve further into this point, we took a look at informational resources released recently by America’s Gold Authority®, U.S. Money Reserve, a company working to inform the public on economic issues.
Nature of Recessions
Before continuing, it will be helpful to touch on the nature of recessions, since the term is a charged one that may conjure some ideas not necessarily aligned with reality. It is important to note that recessions are not intrinsically bad. If allowed to occur naturally, recessions can be an important part of an economic cycle. According to the video “Are We in Another Economic Bubble?” by U.S. Money Reserve, recessions typically occur when labor becomes scarce and wages start to climb, which prompts businesses to reduce hiring and causes the Federal Reserve to raise interest rates. Eventually, this chain of events slows down the economy.
As the economy slows, some businesses’ profits can drop as well. Therefore, many players on Wall Street, such as banks, have a vested interest in implementing policies that delay recessions for as long as possible. Likewise, incumbent politicians may see their political fortunes suffer if an economic downturn occurs while they are in office because voters may become upset with rising levels of unemployment or falling wages. For this reason, many who work in government have a similar vested interest in delaying recessions.
Though one can understand the reasons for the above circumstances, U.S. Money Reserve points out in its recent informational resources that this type of manufactured delay in an economic cycle can have severely negative effects. One reason for this is that unnaturally delaying an economic recession can lead to an economic bubble, which can occur as certain assets become over-valued. The bigger the bubble, the more devastating a recession can be once it inevitably occurs.
For greater context as to where we currently stand, one prevalent method to analyze the current economic boom is to see how it stacks up against past periods of similar growth. It is here that we see how unusual the present expansion is, since there are now only two periods of economic growth in the nation’s history that have surpassed this boom’s current length. The most notable comparison that economists are making is to the boom of the 1990s, which lasted a total of 120 months.
That means we are now approaching the length of an economic upturn that has long been considered an outlier in the country’s history. If we were to reach or surpass that 120-month mark, we would be in uncharted territory. This level of uncertainty could very well feed into the inevitability of a slowdown in economic growth. After all, uncertainty is closely tied to risk, and avoiding unnecessary risk is a key tenet of any sound business or purchasing strategy.
Looming Dangers of Debt
While it is becoming more and more accepted by many that a recession is likely on the horizon, specific aspects of how that recession may look are causing experts to worry. One of those aspects is what the next recession may mean for homeowners. Undoubtedly, few have forgotten the role that the housing market played in the 2008 financial crisis, which caused the median market value of homeowners’ primary residences to fall by 18.9 percent from 2007 to 2010. These losses, which ultimately caused many to lose their homes, were preceded by shoddy lending practices tied to a bubble in the housing markets.
Unfortunately, many experts are again sounding the alarm on lending practices in the housing markets that could contribute to future economic turmoil. These practices are now closely tied to total levels of debt taken on by consumers, which have eclipsed the debt levels that occurred in 2008. While the types of debt have changed a fair amount from those preceding the Great Recession, the high debt levels at present are causing many to predict that debt levels could play a role in economic instability moving forward.
Influence of Politics
Another factor that many worry is contributing to the potential for economic downturn is the hyper-partisan nature of the federal government at present. During the past recession, the legislative and executive branches of the government came together to pass legislation that, many would argue, helped staunch economic bleeding and put the country on the path to recovery. Acts such as the Troubled Asset Relief Program and the American Recovery and Reinvestment Act were signed into law by both a Republican and a Democrat.
However, the political climate has changed drastically in recent years, and it is no longer clear that this type of swift response to an economic downturn is likely to occur. If opposing political parties have differing viewpoints on how to address a recession, which seems probable, it may take some time before the federal government can formulate a cohesive response. If a delay like that does take place, it could lend momentum to a downturn and possibly cause the inevitable economic turmoil to be even more pronounced.
Preparation for Recession
In light of the uncertainty highlighted above, it is important for consumers to be proactive when formulating a plan for an economic downturn. This is especially true given the reality that the government, because of the way in which it defines the term “recession,” is likely to hold off on labeling a downturn as a recession until six months into its existence.
Since one major concern during any recession is the devaluation of wealth-bearing assets, one way consumers can prepare is by seeking out assets that have performed well during past times of economic turmoil. One such asset that is known for its ability to hold its market value during recessions is gold. In fact, gold was the best-performing asset class during the previous financial downturn. That means that the precious metal did not just retain its market value; it actually appreciated in market value. From 2007 to 2009, gold’s valuation rose by 26 percent while many other assets’ values were wiped out.
As the potential for a major economic downturn becomes more likely in the eyes of many economists, information such as the overview above will become even more relevant to consumers. Pulled from informational resources created by U.S. Money Reserve, the information paints a picture of an economy heading for a downturn and warns that the time may be fast approaching to take precautionary measures. For those who heed the call, it may mean the difference between retaining the bulk of one’s wealth or seeing it trickle away in the throes of a recession.
About U.S. Money Reserve
U.S. Money Reserve is a leading gold and precious metals company dedicated to providing consumers with information to help support portfolio decisions. As the only gold company to be headed by a former director of the U.S. Mint, the company serves customers with a strong understanding of both public policy and personal financial freedom. Long recognized for its team of account executives dedicated to providing top-tier levels of customer service, the company has been awarded a coveted AAA rating from the Business Consumer Alliance.