Friday, January 18, 2008


This is quite a subject, and trying to tackle it is almost scary. You hear it everywhere, but who knows what it really means? I just read an article based on a survey conducted by Forbes magazine, that I found rather interesting. According to the survey, 3 out of 4 people believe we are already in a recession or will be sometime in 2008. Does believing we are in a recession make it so? It can be a self fulfilling prophecy. After all, half of the people surveyed have cut back their spending compared to last year. That in itself can cause a recession.

What is a recession? According to Wikipedia, it is "a decline in any country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year."

What does that mean? The benchmarks are:

People buying less stuff
Decrease in factory production
Growing unemployment
Slump in personal income
An unhealthy stock market

In the United States, the word for when a recession begins and ends comes from a group called the National Bureau of Economic Research. This is a non-profit committee made up of 600 academic economists. Their definition for a recession is "a significant decline in economic activity spread across the economy, lasting more than a few months,".

Although some signs point in the direction of a recession, such as a rise in unemployment and a falling stock market, there has not yet been an announcement from NBER. The last recession in 2001 was not formally recognized as one until it was ending nine months later. According to NBER, the average recession lasts only ten months. The point is, of course, that by the time it is recognized we will be well on the way to recovery.

What really worries people is how their lives will be affected. The first thing to note is that even those economists who do predict a recession are suggesting that it will be a mild one. That may mean that the worst is over. Depending on your career, you may or may not be directly affected.

If the idea of a possible recession scares you, there are a few things you can do to ease your mind. The first is to stay away from the stock market temporarily. Instead of investing in stocks, you can build or add onto your savings. Make sure you have at least a six month reserve, which is a smart thing to do with or without a recession. Lastly, remember that cutting spending for fear of a recession could be the very thing that sparks one.

Keep in mind that, over the long run, real estate values have tended to hold their values, appreciating at a pace that at least matches inflation. Especially in stronger markets, such as in San Francisco, real estate represents a good investment, both in times of growth and in recession.

Equally important is to recognize your personal needs, both for investment and for personal housing. If you are “in the market” to buy a personal residence, the value of the property as an investment has to be balanced with the security and advantages of home ownership.

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