We keep hearing that a recession is imminent. I know business owners who await this as if a tsunami is about to hit. But just like ocean science, there is also the science of money. Economists go straight to the history books to help us common folks get some depth of understanding about recessions. We already know that the stock market is not the economy, but too many don’t realize how small the planet has become when it comes to commerce. “Made in America” is just a microcosm of all that gets manufactured and traded across the globe. Everything is connected. Knowledge is power, and I find that knowledge can also be the great Comforter. Here is more information about recessions. We learned this from our recent past. Now we can diagnose our possible upcoming recessions.
There Are Cycles For Business
Not unlike the changing of the seasons, there are cycles for business. There are expansions and contractions. Expansions happen as conditions encourage growth. This optimism stimulates lenders to make money more available and less costly to borrow. Both consumers and businesses then more readily increase their debt loads. As such expansion ages, asset values rise and debt rises also. At some point certain events will occur, and that event will signal the beginning of the end of the expansion cycle. Typically, the stock market will also crash. Suddenly what was manageable debt becomes insurmountable. The cycle changes from expansion to contraction, also called recession.
Conditions That Can Lead To Recession—Like A Surprise Problem
A surprise problem: our most recent example is Covid-19. The global spread of the coronavirus became an economic shock. Don’t go to work, to church, to the sports arena, to concerts. Don’t travel. I’m sure you remember. The whole world practically came to a standstill. Another example of this is from the 1970s when OPEC cut off oil supplies to the U.S. People waited in hours-long lines to fill their cars with gas. This surprise problem created an economic recession.
Too Much Inflation
Not just inflation, but too much inflation: we may be seeing an iteration of this now. Inflation is a natural occurrence. Too much inflation too fast can trigger a recession. Such a sudden rise is countered by Central Banks raising the interest rate to depress that activity. In the 1970s, the Federal Reserve raised interest rates too quickly to try to control rising inflation. This resulted in a recession.
Uh-Oh. Asset Bubbles Ready To Burst
If asset bubbles burst: the current housing bubble may be an ominous example. Successful investors were optimistic in a strong economy. That emotion encouraged lavish spending on real estate. Real estate values saw a meteoric rise. World situations began to limit other expansion. Banks stepped in with higher interest rates. Stock investors began selling. That’s pretty much where we are now. We’ve seen this before.
Too Much Debt
When the cost of servicing your debt means you can’t pay your bills—that’s a problem. Debt defaults and bankruptcies are what precipitated The Great Recession of the late 2000s. This followed the demise of the housing bubble. Ugh. That recession was a real struggle for my business, still young at that time. It’s painful to remember that one for sure.
We Can Diagnose A Possible Recession
I, myself, certainly cannot predict if or when we will have a recession. Recently the news outlets, TV pundits, and radio hosts have seized on this possibility though. If you don’t have a strategy for your business in case the sky really is falling, here is my suggestion. Spend your energy on planning rather than worrying. If this happens, then you will do what? If that happens, your move will be what? What assets do you have right now that will carry you through possible economic turmoil? Is your technology solid? Your technology is your 24/7 employee, ambassador, marketer, customer service desk, inventory tracker, cash flow analyzer—the list goes on.
Aptica offers a FREE assessment of what you have. There is no obligation, and we won’t blow smoke up your skirt about what else you might need. We strive to be the face of exceptional technological maintenance and support for our community and our region. Give us a call and let’s start with a conversation. If we fit, we will partner to overcome conditions that are created outside our immediate control. 260.243.5100
Jason Newburg, 260.243.5100, ext 2101, is the founder and owner of Aptica LLC. This IT management and support company has been serving small to medium-sized businesses for 20+ years in the region that includes Angola, South Bend, and Fort Wayne, IN, Battle Creek, MI, and Toledo OH.