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.