Opinion | Recession warnings are growing. Almost no one is prepared.


Virtually no one seems ready for the dark clouds gathering over the domestic and global economy. Not most Americans, and certainly not the politicians who govern them.

Business and corporate leaders have been sounding the alarm lately about the rising risk of a recession. An overview of the warnings:

  • Fitch Ratings said it “expects the US economy to enter a true recession in the second quarter of 2023.”
  • Economists polled by the Wall Street Journal believe there is about a two-thirds chance of a recession in the United States next year.
  • The Conference Board’s most recent gauge of CEO confidence was at its lowest level since 2009 (during the Great Recession), and 98 percent of the CEOs surveyed expect a US recession next year. Some particularly high-profile corporate leaders, such as JPMorgan Chase’s Jamie Dimon and Goldman Sachs’ David Solomon, have included their names in the forecast.
  • Various global organizations have highlighted the risks for poorer countries. The International Monetary Fund warned that “the global economy is heading for turbulent times.” The World Bank said: “The world could be heading for a global recession in 2023 and a series of financial crises in emerging and developing countries that would cause them lasting damage.”
  • While some metrics — like US job growth — suggest the economy is still fine, others are showing signs of distress. Home Sales and Mortgage Demand Plunge; Investors are shedding junk-rated paper being sold by real estate finance giants Fannie Mae and Freddie Mac over concerns about rising mortgage defaults. Global freight volume and new US production orders are also declining.
Also Read :  Fed Rate Hikes 'Playing With Fire' on the Economy

President Biden said last week that he does not expect a recession, a comment that drew some mockery. But he says does to expect a downturn at this point would be political misconduct; Such a pessimistic message from the President could so terrify the public that the recession will become a self-fulfilling prophecy.

Also Read :  Dow hits 2022 low as markets sell off on recession fears

Less tenable, I would argue, was Biden’s suggestion that Americans shouldn’t “prepare” for a recession just in case. While it is appropriate to project optimism, particularly given the mixed economic signals all around us, it is valuable to encourage some financial caution should the more optimistic scenario not materialize.

So how might preparing for a recession look like? If you’re a consumer, this could mean having to top up your cash for rainy days. Consumers have a total of spent their savings quite a bit in the last year.

That’s largely understandable: with prices rising and wages lagging behind, some households have had to resort to savings to pay their bills. Of course, spending savings means less security in the event of job loss or hours cut.

Some sensible advice might go something like this: Unless to need To make a large, expensive purchase today, such as a Whether it’s a new car, a new house, or an upgraded refrigerator, think carefully before you do it – especially if the purchase would require financing (interest rates are high!) or if you work in a field without much job security. Many workers have changed jobs in the past year, often in pursuit of big pay rises, but their new positions aren’t necessarily secure. In industries that tend to be sensitive to changes in the business cycle, such as B. in retail, many employees were hired.

Some companies have begun withdrawing investments and freezing hiring — which could make their own finances safer, but collectively could also hasten the recession. (The same is actually true if consumers all follow my frugal advice above at the same time.)

The biggest concern is how little governments have done to prepare for a downturn.

Politicians from both parties have scapegoated others for possibly hastening a recession while doing little themselves to combat recession risks. In some cases, they have taken actions that are active deteriorate the economic prospects.

The threat of a US debt default, as Republican lawmakers are now doing, is bringing unnecessary uncertainty to financial markets. Other measures, such as canceling student loan debt or cutting state income and gas taxes, are slightly inflationary. This means that the Federal Reserve will have to raise interest rates even more to offset this inflationary impact; The resulting higher interest rates could wipe out the current economic recovery overall.

It is short-sighted for other reasons, too, to squander government budget surpluses on tax cuts instead of squandering those funds. States need a financial cushion when their tax revenues fall. They’ll also likely have to spend more on safety nets (Medicaid, unemployment benefits, etc.) if there are widespread job losses. If Republicans regain control of one or both houses of Congress in the interim period, federal aid to alleviate any state budget problems is far from guaranteed.

And the state governments should have repaired their ailing unemployment insurance systems, which failed massively in the last recession. Many don’t have it.

Politicians need to stop pointing and distracting – and start sealing the hatches.


Leave a Reply

Your email address will not be published.