The US Economy Always Goes Through Cycles, Good and Bad!

Guess which one is coming up?

Recession 1

I had a dream last night that I was temporarily lost in the woods where it had freshly snowed. Actually, it was more like a nightmare since; I truly hate snow, ice and cold weather. Then, this morning I was outside in my garden and, even though I live in sunny South Florida, I noticed that the tree squirrels were very busy preparing for what passes for winter down here. I watched them run back and forth for a while; then I thought of something;

We should enjoy living in the moment, but we must also prepare for the future.

I have noticed that even very wealthy people save for “rainy days.”

The American economy has done well since the last recession in 2008; it has had over six years of continuous growth. Yes, this is good news, but the bad news is that the American economy goes through cycles and we are due for a correction.

In 1995 through 1999, we had an economic boom due to technology growth, partly due to the fear we had about the doom & gloom of the impending Y2K.

Remember, we were brainwashed to believe that we had to upgrade our computers because they were only programmed to go up to the year 1999 and not 2000. So, on Jan 1, 2000, every business and every home had new computers, new software, new applications–and in the first quarter of 2000, there was almost zero sales activity at computer stores and outlets. Hello, tech-bust.

2008 housing bubble

With a lot of Government spending, we climbed out of that recession only to build another bubble; The housing bubble!   From 2004 -2007 we saw the value of real estate go through the roof only to see another bubble burst in 2008. Again, the US Government intervened with massive spending, and from 2009 through now in 2015. We steadily recovered due to very low interest rates and very cheap loans.

The oil sector in the USA used this cheap money to put in massive infrastructures and used new technology to pull huge amounts of oil and natural gas out of the ground. This put OPEC in a wringer as they had legitimate competition, which drove prices down. The great news is that we have an oversupply of oil and natural gas. The bad news is that the abundance of oil sends the oil prices crashing over 65 percent from its high in 2008.

oil bubble

With infrastructures in place and oil prices so low, the huge spending also has come to a screeching halt, and we can clearly see that the US economy is now starting to slow down. What does all this mean? Very clearly it means that whenever spending stops, an economy will again head for a recession.

What should you do? Well, just like the tree squirrels in South Florida and very busy ones in the northern parts of America getting ready for the winter months ahead, you need to start planning for some rocky times ahead. How do you do that?

Start saving at least 20 percent of your income. Cutback and only buy things you do not really need. Maybe look for a more secure job.

Pay off as many of your loans as you can, especially the ones where you cannot deduct the interest rate on your taxes. Think of all the things you wish you had done before the last recession and do them now.

Yes, the recession may not come in the next, month, next year, two years or five, but I know one thing for sure–it will come.


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