Shielding Against Recession

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Shielding Against Recession

Considering the current economic situation, a recession or economic crisis looks more than likely. An outlook of possible economic scenarios that could emerge as a result of this situation as well as strategies to outlive their impacts has been outlined below.

Economic Scenarios

The current economic situation suggests that an impact on the US, as well as the global economy, is unavoidable, however, several scenarios could emerge depending on the trajectory of the outbreak. A couple of scenarios relating to the economy and currency are detailed below.

Recession

  • The US economy might be sinking into a recession. Signs that point to the possibility of this happening in the near future include "crumbling consumer confidence, slumping auto sales, a manufacturing funk and rising layoffs."
  • Jobless claims towards the last week of March increased to 3.3 million. To put it into perspective, "the previous worst total in October 1982 was just one-fifth of last week’s level."
  • The economic impact of the current situation in the country might not be evident during this month, however, by the end of the next month, the bad numbers will become visible in the reports.
  • It has also been projected that the upcoming impacts on the economy will not just fade away all of a sudden, despite the $2.2 trillion stimulus package and all other efforts being taken to revive the economy, but will take some time depending upon how long the coronavirus takes to disappear.
  • Federal Reserve Chairman Jerome Powell said that "the US may already be in recession and warned that the time for lifting societal restrictions that have squashed the economy would be dictated by the coronavirus outbreak — in contrast to Donald Trump’s aspiration to return to normal life by Easter."
  • With all the above in mind, Powell also said that "said the Fed would not run out of financial ammunition and when the economy began to recover, we will be there to make sure it's as strong as possible."
  • The upcoming recession might even become so bad that it is being compared to the stock market crash of 1929 and a V-shaped recovery may be unlikely.
  • President Donald Trump predicted the economy to start recovering by July or August this year.

Strength of the US Dollar

  • The US Dollar has strengthened during the COVID-19 outbreak due to several reasons. Although the economic condition in the US itself is not favorable, market-wide panic has benefited the US Dollar.
  • The US Dollar has "rose against a basket of currencies for a third day on Thursday [March 19], as worries about the economic fallout from the coronavirus boosted dollar demand despite recent steps by world central banks aimed at alleviating market stress."
  • Jane Foley, senior FX strategist at Rabobank, suggests that the dollar would continue to be strong despite the coronavirus impact.
  • Although many have predicted that the dollar will strengthen as a result of the impact of the coronavirus on the global economic landscape, some experts also predict otherwise. Kit Juckes, macro strategist at Societe Generale, thinks that the overall economic situation will cause the dollar to plummet.

Strategies to Survive an Economic Collapse

  • The collapse of the dollar is unlikely, especially in the current economic scenario. However, some measures that can be taken to steer clear from the impacts that it could have on someone's life.
  • That said, if a collapse was to happen, no one would be able to predict it and the surprise factor would be the very thing to cause it. The signs of a collapse are not easy to identify for most people. IMF research has shown that "out of 153 recessions in 63 countries between 1992 and 2014, only five were predicted in advance."
  • There are many things that can be done in order to prepare for an economic collapse, e.g. storing water, food, medications, sanitary supplies, and other similar measures.
  • One of the most important things to be done to prepare for an economic collapse is to preserve wealth. As per recommendations, one should maintain between 10% and 30% of their net worth in gold and silver.
  • Experts say that precious metals do not lose their purchasing power even if a currency does. Approximations suggest that "a silver dime is always worth a loaf of bread and a silver quarter will always buy a gallon of gasoline."
  • If the dollar collapses, people may find out that their currency reserves, that they saved over a long period of their lives, have become worthless. Many people suggest preparing for the worst and to prepare for an economic collapse by doing a number of things, e.g. becoming self-sufficient, stocking essentials including food and non-food supplies, being ready for cold weather, buying precious metals, starting a mini-homestead, practice bartering, etc.

Strategies to Survive a Recession

  • Recessions are defined as "two consecutive quarters of negative economic growth" and "can be caused by economic shocks (such as a spike in oil prices), financial panics (like the one that preceded the Great Recession), rapid changes in economic expectations, or some combination of the three."
  • A recession or crisis is not the same as an economic collapse. During a recession, people may lose jobs and even their homes, however, basic services are still provided.
  • There have been many recessions throughout history including stagflation in the 1970s, the 1981 recession, savings and loan crisis in 1989, the recession after 9/11, the 2008 financial crisis, and now the crisis caused by COVID-19 in 2020.
  • There are numerous strategies that can be adopted to fare better during a recession/economic crisis.
  • These strategies include building an emergency fund, taking some credit, developing a Plan B, being ready for finding a new job if needed, paying off debts, cutting down on expenses, and protecting retirement savings.
  • Another strategy is to build recession-proof skills/businesses that can help if someone is laid off during a recession.
  • Experts suggest that "If you have an emergency fund and little or no high-interest debt, a recession won't ruin you".

Things to Keep in Mind

  • Although the research has identified several possibilities of what could happen and steps that can be taken, the ultimate situation will depend on the control (or worsening) of the outbreak of COVID-19.
  • The research has identified several strategies that can be adopted to outlive an economic collapse or recession. These strategies are purely based on expert opinion and do not guarantee a specific outcome.
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