Can we talk ourselves into a recession?
It seems that everywhere you look the news is bad. Last week, the Ministry of Justice reported that 400 mortgage repossession claims have been processed through the courts daily. The suggestion is that over 100,000 people could lose their homes.
Elsewhere, the British Chamber of Commerce reckons that unemployment in the UK will rise to more than 2 million for the first time since 1997.
Meanwhile, the former chief economist of the International Monetary Fund, Kenneth Rogoff, has put the cat amongst the pigeons by predicting the collapse of a major American bank within months. He stopped short of revealing the vulnerable bank, but most pundits have good a idea as to which one he is referring to.
But here’s the question: Can we really talk ourselves into a recession?
The simple answer is no.
Whether an economy expands or contracts is governed by the underlying economic health of the nation. And because it is nigh on impossible to control economic growth at a uniform rate, such things as production, consumer spending and household income will necessarily fluctuate over time. It’s called an economic cycle. And no amount of well-intentioned flannelling by politicians can prevent an economy from sliding into recession when growth stalls.
Of course it can be argued that we could try to spend ourselves out of a recession given that two-thirds of the economy relies on consumer spending. But doing so is tantamount to believing that we can fly if we flap our arms hard enough. A quite preposterous idea!
What we are witnessing is an economic downturn that was inevitable following a decade of strong growth. For some people, it will be the first economic slump they have ever experienced. For others it is just another economic slowdown. But the surest way of surviving the recession, any recession, is to hunker down, reduce spending, and pay down debt that we have accumulated.
Some people believe the recession could be long and drawn out, and they may well be right. But it will feel a lot longer and more drawn out the more debt you carry.
