Is It Possible To Mitigate The Effects Of Recession?
Written by Shiv Prasad on 3:49 AM
Recession is a decline in a country's gross domestic product (in plain speak the value of all goods and services produced and consumed) for two or more successive quarters in a year. By the time, it can be conclusively said that there is a recession, it probably has already come and gone. In the last four decades this cycle is getting smaller and smaller, due to aggressive intervention by the Federal Reserve.
Let us look at some of the main reasons this time around. Over the last several years, cheap money policy has lead to expansion in demand for major industries such as automobiles. In the last two decades most families have moved from a single car ownership to multiple car ownership and demand probably is peaking. This hurts automotive industry.
Imports are getting cheaper and cheaper. China exports $7B worth toys, most of which comes in to the US. This results in loss of jobs in the economy. The theory is that cheaper imports will kick start demand in the economy that will create other jobs. In the short term this is true. In the longer term however, the economy may have to readjust.
Probably the greatest impact is through a bad mood that results in a gloomy outlook. The media and financial heavyweights are trying their hardest to persuade that the economy is in trouble. A gloomy outlook can serve as a self fulfilling prophecy , as businesses and individuals-cut back on investments as they believe that tomorrow may not be as rosy as yesterday. There are several contributories for this. Increasing price for gas at the pumps, blue chips moving downwards (major reason being write-offs due to the subprime crisis), the war in Iraq and Afghanistan not going too well and the constant barrage by the media.
There are three things that one can do to minimize the ill effects -
1. Become more valuable to your employer. The more valuable you are, the less chances that you might be asked to go when things are not going good.
2. Cut credit card spend and reduce interest cost
3. Take advice from a financial professional to adjust a variable rate mortgage that could hurt if interest rates go north.
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