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Signs of an Impending Economic Recession

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In 2007, top officials at the Federal Reserve believed the housing and banking turmoil were isolated incidents and were not going to lead to an economic recession. They were clearly dead wrong.

In fact, Timothy Geithner, then president of the New York Federal Reserve Bank, said during a telephone call on August 10, 2007, that most of Wall Street was still doing fine.

Eventually, the financial recession would come to threaten all of Wall Street’s powerhouses, including Goldman Sachs and Morgan Stanley.

Plus, as I’m sure you remember, it led to the massive bailout of AIG and the government takeover of mortgage giants Fannie Mae and Freddie Mac.

The combined effects of the housing market crash, along with the credit crunch, helped push the country into its worst recession since the Great Depression. In December 2007, the national unemployment rate was 5.0 percent and it had been at or below that rate for the previous 30 months.

At the end of the recession, in June 2009, it was 9.5 percent, making it one of the highest unemployment rates among industrialized countries.

The Great Recession began with the bursting of an 8 trillion dollar housing bubble leading to major cutbacks in consumer spending.

This loss of consumption, combined with the financial market chaos triggered by the bursting of the bubble, led to a downturn in business investments. As consumer spending and business investment dried up, massive job loss followed.

Back in 2007, there were warning signs of a potential collapse and there will be warning signs for the next collapse, which is why everyone needs to be aware of the different issues that will lead to our next recession.

Here are the most common signs to look for that point to another economic downturn.

Increasing government debt. As you know, U.S. national debt is out of control. According to the most recent data, the U.S. national debt stands at $22.02 trillion. Currently, the U.S. government is paying back its debt by borrowing more.

We could see the next collapse play out if creditors to the U.S. say they want their money back or that they won’t lend any more until the U.S. pays higher interest.

Surging consumer debt. Over the past few years, there has been an increase in consumer spending. However, the problem is, consumer spending was increasing on the back of consumer debt.

Americans spent more by borrowing more money. In other words, Americans incomes didn’t grow as much as their debts. In the fourth quarter of 2018, household debt in the U.S. increased for the 18th consecutive quarter, standing at $13.54 trillion.

Put simply, Americans now have more debt than they had just before the previous financial recession.

Unsold goods piling up. When economic conditions start to slow down, businesses typically keep ordering goods like they normally would, but those goods don’t sell as quickly.

As a result, inventory levels begin to rise and that is precisely what is happening right now in the U.S. Businesses don’t like to have excess inventory, because carrying excess inventory is expensive.

Most companies try to manage their inventories efficiently, but if the economy slows down unexpectedly that can catch them off guard. When inventory levels get too high, businesses often start reducing the amount of stuff they are ordering from manufacturers.

In turn, that leads manufacturing output to slow down and that is what we have witnessed over the last couple of months.

Here’s the thing. The U.S. economy’s size makes it resilient. However, in 2007-2008 they didn’t see the writing on the wall, which lead to the Great Recession.

The government did act to avoid a complete economic collapse, but the fact remains, all Americans should be prepared for a complete meltdown in case the government fails us (when the government fails us.)

If you haven’t prepared yet, you know what to do: Start building up a year’s worth of food storage and other supplies. When the economy goes south, our basic necessities will be the first things to go.

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