Monday, April 20, 2009

5 Reasons Why the Recession is good

"Recession" and "good" in the same sentence? Yes, despite the obvious negative impacts of a strong recession like we are having right now, there are actually quite a few positive things that can come out of a strong recession.

  1. Financial Reform - Whether you like regulation or not, there will be a lot more of it. Each and every major recession, or Depression, teaches the country how to prevent the same circumstances from occurring again. We learned a lot from the Great Depression, and will learn a lot from this economic mess as well.
  2. Wakes People Up - There is no doubt, that losing 40% in your 401k plan will wake you up. Those Americans who have been spending way more then they could afford, are now going back to the basics. Valuing time spent with family over that spent in the new Porshe, or in front of the new 60 inch lcd tv.
  3. Prevention of a Giant Multi faceted Bubble - Without cyclical downturns, investments would all be giant bubbles. Wheather it be stocks runnign up to have a PE ratio of 50, or the housing market pricing out most families, the lack of a downturn would obviously cause large bubbles to form which would eventually pop.
  4. Promote Efficiencies - Yes, jobs are being cut, and people are in trouble, but the recession has caused everyone, families as well as corporations to cut back their spending and squeeze as much as they can out of every dollar. They are become more efficient with what they have. When things do turn around, they will be in a position to enjoy and take advantage of the turnaround.
  5. Everything is Cheap and Affordable to Different Groups - The recession has actually hurt the rich more then the poor in terms of total wealth. Having said this, the Poor may be facing more problems then the wealthy, but will now possibly be able to afford a new home, and invest in stocks which in my opinion are grossly undervalued.

1 comment:

Faizi Crofts said...

In the long term analysis recession is good. The only thing that experiences exponential and un-mitigated growth (a naive view of a healthy capitalism) is perhaps cancer as it metastasis through the body. Recession is part of nature and pears away many problems and necrosis in the market. Gives us something to strive against also.

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