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From what I hear, the last one was in the early 80's. I was far from being concerned about money at that time. What does this mean for the average American family who works, pays their bills, and doesn't rack up a bunch of debt? I mean, I keep hearing the sky is falling on those who bought McMansions, racked up a bunch of credit card debt, took out huge equity loans, etc., but we've never done these things. Can anyone speak from history?
Pearstein in the washington Post had a great column on this the other day - one of the thing he points out is that if ALL RETAIL STORES in the country sell 5% less than they did the year before - it would equal a recession. That points out a number of things - one that a recession is a drop in growth - but not necessarily a retraction. So if the economy stayed steady - i.e. didn't grow, but also didn't actually contract - you're still talking recession.
Because of this, most businesses (the same ones who have been buying back stock shares with all their extra cash on hands) can weather a couple of quarters of recession - as long as it doesn't turn into a terribly long cycle.
Also - most people aren't terribly affected - unless the very cause of the problem (i.e. tech bubble bursting in 2000, or housing today) is intimately related to their livelihood.
So - if you're a chemist working for Dow Corning, will this possible recession affect you? Some, perhaps - maybe you won't get a raise, or less of one - but if you're making the same money as you were last year, and inflation goes up 3 to 5% - its really like you're making 95% of last year's salary. Could you live on that? Probably.
However, if you are in one of the industries (banking, housing, etc..) that is deeply affected by these troubles you may have lost a job, or be losing a job, etc.. Then you will truly be affected.
For most of us - we will cut back some, but not terribly change our ways.
Some of the day to day issues are rising cost of food, transportation and consumer products. At first it sneaks up on you, but then you realize that you took out $200. yesterday at the ATM, had lunch and stopped at the grocery store and you are out of money.
It's subtle, but not so subtle that it doesn't affect those on a tight budget, or a fixed income.
The decreased value of the dollar is already having a huge effect on the cost of imported goods, and many of the goods we consume are imported. Simple example: the watercolour brushes I buy in WA state are imported from two European countries: Germany and Italy. All the brushes will be increased by 20% effective March 18. I talked to the supplier at great length about this only half a week ago; I bought 2 brushes now to avoid that increase. In another month it is unlikely I will think, let alone buy another watercolour brush. I will put that money into bread and wine.
You're money will buy less and less. Your paycheck remains the same but prices increase quickly. Look at gas..going up pretty steep week to week now. Food is going up pretty fast too if you pay attention to your food bills.
How's your paycheck keeping up with those prices ?
From what I hear, the last one was in the early 80's. I was far from being concerned about money at that time. What does this mean for the average American family who works, pays their bills, and doesn't rack up a bunch of debt? I mean, I keep hearing the sky is falling on those who bought McMansions, racked up a bunch of credit card debt, took out huge equity loans, etc., but we've never done these things. Can anyone speak from history?
I came of age during the early 80's recession and don't remember it being so bad. But, like you, I didn't have any debt to speak of, and had a secure government job.
The only thing that sticks in my mind is that it was near impossible to buy or sell a house due to mortgage rates of 12-15%.
From what I hear, the last one was in the early 80's. I was far from being concerned about money at that time. What does this mean for the average American family who works, pays their bills, and doesn't rack up a bunch of debt? I mean, I keep hearing the sky is falling on those who bought McMansions, racked up a bunch of credit card debt, took out huge equity loans, etc., but we've never done these things. Can anyone speak from history?
I don't know if my answer counts but I grew up during a severe economic crisis in Russia, in the 90's. I was about ten when it really started and my family emigrated right after I finished my High School there.
I remember the hyperinflation of over 1000% a year (yes, I mean a thousand, that ain't a typo). Suddenly, the only things that most people were really spending money on were necessities. Flying on an airplane, buying any kind of electronics, hiring someone to remodel your apartment or even taking a taxi late at night became unattainable luxuries. Even things like chocolate or meat became rare guests on many dinner tables.
I remember how the country that before had a very low crime rate became immersed in a crime epidemic. Everyone living on ground floors had to put iron bars on windows and many installed steel doors opening outward to deter burglars. Walking down the street required continuous caution due to the young delinquents flooding the cities.
I also remember that many educated or otherwise skilled workers suddenly had nothing to do in their fields of expertise. People en masse resorted to petty commerce, reselling Chinese or Turkish junk in public market places. People who did work, often did not get paid by the State at all, sometimes for as long as a year.
I remember how my Middle School closed a couple of times for weeks because the teachers went on strike to demand several months' pay, which probably amounted to a hundred dollars. All the time you could here sad stories about whole families getting by on their elderly parents' government pensions.
People did some interesting things to survive (in addition to reselling foreign goods, already mentioned). The most peculiar thing we all did and that I have difficulty explaining to Americans was growing our own food, especially potatoes. The government gave out or sold very cheaply small plots of land. My childhood memories of picking black currant berries, planting carrots or taking weeds out of a potato field are plentiful and still vivid. Every mortal person did that, everyone was a peasant during the summer weekends and holidays.
Now I could go on forever with this sort of stuff but I've got a much more point to make that is relevant today:
I had a happy childhood. I can't think of any exceptionally traumatic experience back then. The world was still a wonderful place, full of new things to learn and explore. I don't regret the least bit not having grown up in America. In fact, I am infinitely thankful that I am who I am and I came from where I came. I've seen life not through the glasses of consumerism but closer to its essence. People manage, people always manage even if the sky is falling for the big suits somewhere on Wall Street and true happiness has little to do with how big your house is (there were 4 of us in a 1-bedroom apartment), how far you can go on vacation (after about 1993 I never went more than 60 miles from my hometown) or how new your car is (we never had any car, bus was king). The world created by media and advertisement does not really exist and if it did it wouldn't be worth a dime.
But to be frank and honest, I've got to admit two things. First, both of my parents kept their jobs (in research/technology), even though the pay was enough just to cover the basics plus a few very modest extras. Not everyone had that luxury and I don't know what I would be saying if my parents spent their days selling Turkish junk on mafia-controlled market places. Second, the reason I'm in this country and the reason I even know this language (a dozen of years ago I wouldn't be able to read anything on these boards), was precisely because of the turmoil in Russia. My parents wanted a better future and the want came from the insecurity that they lived through and struggled through. Children can be quite happy, even as their parents are preoccupied.
Yes, economic downturns suck, that is true. But life doesn't end with them and there's always room for joy. Besides, they always end. When my former class mate came to America for a short visit recently and I took him for a walk in San Francisco he was uncomfortable due to all the bums around, he almost didn't want to be there. Russia must have changed drastically during the last year if San Francisco looked repugnant to my friend! Things always change but most of the time people survive these changes. We all need to live more in the moment and worry less. We should have faith that things are the way they are for a reason, that they will work out, that our happiness is up to us and not up to what they say on TV. Otherwise we'll always be tormented by a fear of this or that.
From what I hear, the last one was in the early 80's. I was far from being concerned about money at that time. What does this mean for the average American family who works, pays their bills, and doesn't rack up a bunch of debt? I mean, I keep hearing the sky is falling on those who bought McMansions, racked up a bunch of credit card debt, took out huge equity loans, etc., but we've never done these things. Can anyone speak from history?
We have had two recessions since the one in 1980 and they were both relatively mild.
Since you have been financially responsible you have less to fear than others. The important things to remember is recessions tend to be brief and are actually somewhat beneficial as they flush out the excess.
And most people do not lose their jobs, but keep on working. Most that lose then find something else.
The best thing to do is to always be prepared and it seems you have done just that.
You'll weather recessions just fine as long as you aren't levereged to the hilt and you work in a job providing essential services that can't be outsourced.
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