Is there really a recession on the way?Sep 05, 2019
If you take a look back through history the US economy seems to go into recession about once a decade, and usually it happens for a period of between about 6 and 18 months.
I can’t remember who said it (Marks? Buffett? A. N. Other?), but there was on old quote about recessions coming around once every 7 to 10 years, so you shouldn’t act surprised when they come.
In a recent article, Ben Carlson wrote that recessions are a feature of the economy, rather than a bug – the US economy spends about 15 per cent of its time in recession – but investors spend far more time worrying about recessions than they should (because the economy is expanding the rest of the time).
Of course, recessions aren’t pleasant, especially if you happy to be one of the unlucky folks that loses their job, or experiences a business closure.
But recessions can also have a cleansing effect, clearing away some of the excesses from the economy such as under-performing companies…not to mention sometimes offering assets at ‘on sale’ prices.
Australia is fortunate in that it has an open economy with a number of levers that can help the economy to recover relatively quickly from downturns: the setting of its own cash rate, a free-floating currency, relatively low government debt, and a flexible labour force, for example.
The reality is, though, that recessions do recur, so it can only make logical sense to expect these cycles to continue.
I discussed this a little further in the short video here
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