Analyst reports and business journals are awash with news of the onset of a recession in the US economy. Real estate, easily the single-largest storage of US consumer wealth, has seen collapsing demand, severely straining the consumption-led US economy. Increasing oil prices means that consumers are left with reduced purchasing power for other goods. Finally, the credit crunch will entail reduced investments by individuals and corporations, further slowing down the economy.
The business cycle of course, renders a recession inevitable. The last 60 years has seen 10 recessions in the US, with the average recession lasting just under a year. The good news is that the time period between successive recessions has continually increased. Hence, recessions have been fewer are farther apart as the years have rolled by.
Nonetheless, given this inevitability I think it helps to focus on the positive effects of recessionary…and they are significant. I like to think of it as spring-cleaning. Recession punishes reckless investments and comes down hard on needless financial speculation…forcing organizations to discipline themselves once again. It forces managers to tighten their belts and work on removing excess ‘fat’ in their organizations. In addition, recessionary times curb price and wage increases, thereby killing inflation.
In light of this, it is understandable that central banks around the world go only so far to prevent recessionary tendencies. Pandering to investors and business managers only serves to increase their risk appetite, making the eventual recession longer and harder.
Recessions ARE inevitable. Bring them on....we'll continue to learn from them and eventually, prosper in greater numbers.
