We’ve been programmed to want things fast and snappy. So it’s no surprise that financial types and investors and others are clinging to the idea that if we hit a bottom, we should be prepped for a quick recovery from the recession. Indeed, this idea is often expressed as a V-shaped recession. Look at the V: It illustrates a steep decline, a relatively short stay at a bottom and a rapid recovery. This view of things, no matter how attractive, may not actually come to pass. President Barack Obama has been saying since his campaign that there is no quick fix to our economic woes. And Paul Krugman – just this morning — warned against thinking that we’re going to see an amazing V-shaped recession. Bloomberg has the comments of Nobel Prize winner Krugman:
“It looks to me now as if the markets are now pricing in a rapid recovery, that they’re pricing in a V-shaped recession, which I consider extremely unlikely,” Krugman, 56, said at a forum in Shanghai today. “The market seems to be looking as if this is going to be an average recession, but it’s not.”
What does this mean for your personal finances? Well, it means that you might be struggling for a little longer (if you are struggling right now). While there are signs that we might have reached a bottom, it is far from certain that a meteoric recovery will follow. Our current recession is might have a recovery that looks more like a U with a rather long bottom. Or maybe recovery will look more like this, ⦧, with a more gradual slope up and a plateau before further growth. At any rate, the idea that things could be improving soon doesn’t mean that you should stop following sound financial principles.
If you have been making changes due to the recession (such as saving more, getting out of debt and spending less), keep with those changes. Don’t let the idea that recovery is imminent trick you into complacency. Especially since rapid economic recovery is probably not very likely. Good financial practices are always worth following. And if you maintain your recession habits during the good times, the next time a recession comes around you will be better prepared.
What shape do you think the recession and recovery is most likely to take?
image source: daylife