Good Recession

The best recession ever. Enjoy this recession while it lasts. Unemployment is super low. The dollar is super high. Companies are making record profits. Stocks are selling at discounts. The government has a surplus. Gas and food prices are beginning to come down. It's easy to make money. It pays to save money. A moderate slowdown can avoid a crash to keep the good times rolling.  

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The U.S. economy has contracted two quarters in a row. Therefore, we are officially in a recession. Let's embrace the facts. Don't deny reality. Just decide what reality means for you. Oftentimes in life, you cannot change the facts or what things are. However, you can always change what they mean to you.   

The U.S. economy is finally recovering from the pandemic caused by the coronavirus disease of 2019 (COVID19). What an epic pandemic. COVID19 is definitely one for the history books. The pandemic was one of those milestone events that happen once every 100 years or so. We are all COVID19 pandemic survivors. We should be proud and grateful. 

From Wuhan to the world.

COVID19 began in the Wuhan region of China. The precise cause is either unknown or undisclosed. Whether COVID19 began in a live meat market, in a laboratory, or out in a jungle, is yet to be known. In any event, COVID19 spread like wildfire throughout the whole world. Millions died and some are still dying to this day. Nonetheless, thanks to science (vaccines) and natural adaptations (herd immunity), the crisis stage of the pandemic is over. 

COVID economic reactions

Many governments around the world imposed restrictions of movement ("lock downs") to reduce the spread of COVID. As a result, economic activity (both supply and demand) went down significantly. People consumed less. Factories produced less. The downward spiral cycle fed itself.

Rich governments began to give money away to jump start their economies. The U.S. government flooded the American economy with free money. Consumers received direct stimulus payments. Companies received grants in the form of "loans" that did not require repayment. The Federal Reserve lowered interest rates to near zero, and created money out of thin air to pump it into circulation.

Inflation

The combination of free money with less goods to buy, led to the obvious consequence: higher prices. When demand is higher than supply, prices increase. In average, consumer prices in the United States increased by about 10% in 12 months. Of course, some goods increased more than 10% (e.g. gas and food) while others decreased (e.g. computers and electronics).

Upon realizing that prices were increasing way past the desired annual rate of 2%, the Federal Reserve began to increase interest rates and tapered off the artificial pumping of money. Congress also stopped the stimulus payments and the special business "loans".

Cooling down

The economy had overheated and it was time to cool it down. Too many dollars were chasing too little goods at once. The combination of higher interest rates without free money floating around with increased post-pandemic supply of goods and services will bring prices down.    

Things will get back to normal soon. The key is that prices do not fall too quickly. That would be worse than inflation. Yes, deflation is significantly worse than inflation. It's easier to make money when prices are going up. Whatever you buy, sells for a little more. When prices fall, the opposite may be hold true. 

Pricing psychology

Paradoxically perhaps, low prices can make you spend more overall. Call it the Walmart Effect or whatever else. When primates see low prices, they tend to buy more to take advantage of the "savings", but end up spending more in total. Low prices lure you dumb into becoming a gross hoarder of cheap stuff. Again, the Walmart Effect.

High prices on the other hand invite you to be more selective and frugal. You can save a lot by becoming a smarter consumer. Window shopping is a pleasure. High prices motivate you to consume less, which is a blessing for you individually even if it "hurts" the overall economy. 

Politics

Politically, you are made believe that recessions are always bad. That is understandable. Each side must play to win. The economy is sacred in our country. We must pay attention and stay alert. In this instance, however, most of all can agree (even if secretly) that a moderate economic slowdown can help everyone. No one really wants excessive inflation. They way to control it is to induce a small recession. 

Managing the economy is similar to driving a car. If you only accelerate and never slow down, you will eventually force yourself into a crash. It's better to make adjustments along the way based on road conditions.  

Hope

The hope is that we are living the best recession in our history. Hopefully, it is all part of a healthy post-pandemic recovery. In hindsight, the fiscal and monetary stimuli proved excessive. The economy over accelerated and overheated into excessive inflation. It's better to slow down a little. 

Food for thought. What do you think?

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