As of next month, America is expected to be in a full-blown recession. Nearly 40 million people have filed for unemployment over the last three months, and some businesses are preparing to close indefinitely. Additionally, experts are saying that the stock market is projected to be in decline well into 2021. Even President Trump has changed his messaging about the economy saying:
“You’re going to see some great numbers in the fourth quarter, and you’re going to end up doing a great year next year.”
This recession will have come after an unprecedented 11 years of economic growth (recessions usually happen every five to seven years).
There are several things that make this recession different from the one in 2008. For starters, the cause of this recession is the coronavirus global pandemic. Because of how deadly and contagious the virus is, industries have come to a complete halt which is having a major ripple effect. During the 2008 recession however, the fault was mainly on predatory lending practices by banks.
Since then however, several regulations have been put in place to prevent such an occurrence from happening again. This mainly means that there are a few different tools in our economic arsenal that we did not have last time around.
Since the coronavirus economic shutdown started back in March the government has rolled out several provisions to help keep the market afloat; one of which being essentially nationalizing the Federal Reserve System (the Fed). The Fed is the centralized bank of America, and the most powerful financial institution in the world.
They are a private entity that: controls the flow of money, regulates national banks, engages with foreign bank entities, stabilizes the economy, and more importantly, controls interest rates. In conjunction with the White House, the federal reserve has reduced the interest rate to near zero. This means that banks have more money to lend and are doing so at lower rates.
Because of the 2008 recession, banks have become stricter with who they are willing to lend to as a means of preventing another bubble, so even though these institutions have more money, they are reluctant to give it out. This is good news because in 2008, banks did not have the proper cash flow and were sitting on Billions in debt.
And so, while we are going to see a major retraction of the economy especially for businesses, now is also a great time to take advantage of the newly increased cash flow. With more money now available, and less demand for certain products and goods, the value of everything is beginning to go down; and this will be the trend for at least the duration of the third quarter but most likely longer.
How can you survive the recession?
The first thing to understand from a market perspective is what is really happening. The Coronavirus is the cause, but the effect is we are now moving from the industrial age to the information age. How the world conducts business and what is deemed profitable are changing. A perfect example of this is, as brick and mortar stores begin to close their doors indefinitely, Jeff Bezos is on track to becoming the world’s first trillionaire. And with this shift in the economic model brings the opportunity to capitalize.
The next thing you need to do is realize that the crisis is in your head. The saying goes that you should never waste a crisis, well now the crisis is going into phase two and you do not want to waste this opportunity either. They say people get rich during recessions; this is because those people look at what we are about to experience as an opportunity as opposed to a setback. Embrace what is happening as a chance to break free from old paradigms of thought and see where you fit in the new reality that is about to unfold.
Create a financial plan for yourself: where would you like to be in a year from now, and is there a realistic way for you to get there? If there is, then figure out what you must do to make it happen. Work on your credit. Reduce your debts by knowing how much money you have coming in and out every month, and where you can make some cutbacks to put more money towards whatever you may owe.
Lastly, make sure you are investing. Start that business. Before it was only a pipe dream, now we are in an environment where it can become a reality. Microsoft, Disney, IBM, General Motors, Google, and Facebook, all started during an economic recession. The only thing those companies had at the time, were an idea and the right mindset.
If starting a business is not your passion find other ways to invest. Other than with our money, we invest with our support of others and with our time. Do not waste any of your capital tangible or otherwise. Now is your chance, there is money to be made, and life worth living, will you be doing it, or someone else?