Personal Finance Blog by Debit versus Credit

Recession: A Self-Fulfilling Prophecy

October 9, 2008 | Filed in: Personal Finance | 4 comments

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It’s no secret that to many around the world the sky seems to be falling.  There is even talk of a new depression - in fact a recent poll by CNN showed that 60% of Americans think we’re likely to end up in one.  A depression!  Can you imagine?  The great depression was a terrible time for our country and the economy.  Unemployment was around 22-25% - literally one in four Americans were out of work.  As of right now unemployment is hovering at about 7% which may be on the high side for our tastes, but comparatively speaking is a fantastic unemployment rate.

I don’t wish to make light of a serious situation, because the economic crisis our country - and by extension the entire world - is facing is nothing to be taken lightly.  It’s a complex problem that’s been in creation over the last decade or so.  However it’s important to remember that this is not the first time we’ve faced economic crises and it will not be the last.  We will pull through this and we can only hope to be stronger and better because of it.  It’s important to remember that the best thing for our country right now is for the people not to hoard their cash, for businesses not to hoard their cash and for the government not to hoard its cash.  The government is doing a fine job with this task (some might even argue they’re doing too well, but that’s for another time), but as individuals and businesses we have been doing exactly what we should not be doing: hoarding our cash.

It comes down to this: a recession is a whispered and spoken fear of ours that is (unintentionally) a self-fulfilling prophecy.  We are afraid of it and we do exactly what needs to be done in order for it to come to life.  If we are to avoid a deep and serious recession then it’s important that we are educated on what should be done to try to avoid it.  Here’s a list of some things you can (and probably should) do that can help to lighten the crisis that seems almost unavoidable at this point.

1. Don’t Hoard Your Cash. Taking it out of the bank or long-term investments and putting it under your mattress is a stupid thing to do.  I repeat, stupid.  Don’t do it.  Your money is insured in the banks and credit unions and if you’re in it for the long-term in the stock market then you should know it’s impossible to time the markets.  I’ve lost a bundle this year with my 401k and other investments, but it doesn’t matter because over the long-run I’ll still pull in a decent (10-12%) return.
2. Don’t Watch The News. Seriously.  They thrive on bad situations and always know how to throw an even more negative spin on things.  Avoid watching the news day in and day out and you’ll avoid unneeded stress and worry.  This will help you to keep your head cool.
3. Stay Rational and Calm. As I mentioned earlier you need to keep your head cool.  If you become upset you will become irrational and irrational people ALWAYS do things that they regret doing at a later time.
4. Pay Down Your Loans. Paying down your loans will free up cash for banks to use and will also help to get yourself out of debt.
5. Buy That New iMac You’ve Been Eyeballing. That is assuming you have the cash to pay for it.  But now is as good a time as ever to buy things that you want and/or need.  Plus if you actually do buy an iMac it’ll help me indirectly by helping Apple’s profit margins and therefore my Apple stock.

It all comes down to rationality.  Don’t be irrational and don’t make stupid and emotional decisions.  We will all get through this ok, but only by keeping our heads about us.  Good luck out there!

Tags: great depression, recession, self-fulfilling prophecy, surviving a recession