WATCH OUT FOR THE BIG “R” WORD (RECESSION)!

May 05, 2022

According to the Federal Reserve, Real (inflation adjusted) GDP per capita in the first quarter of 1980 was $30,174.00. For the 4th quarter of 2021, it was $59,553.00. During these four decades when the American Economy was experiencing six recessions - every one of which was reported in the media as the “End of Economic Life As We Know It” - US real GDP per capita doubled.

To quote the American Economist Brian Wesbury below- this is what is happening now:

“Right now, the US economy is in a battle between forces boosting growth and forces dragging it down. What’s supporting growth? First, continued re-opening from COVID-19. Americans are still in the process of returning to normal, but we’re not completely there yet. Second, monetary policy is still very loose. Even if the Federal Reserve raises rates by 2.25 percentage points this year, real interest rates will still be negative and monetary policy will not be tight. Third, tax rates remain relatively low and are likely to stay that way. Major transformational legislature seems unlikely.

“Meanwhile, the economy faces some headwinds. The Russia-Ukraine war and lockdowns in China are further disruptions to supply chains and the Biden administration is ramping up regulation, adding to business costs.

“Put it all together, positives and negatives, and we’re forecasting 2.5% real GDP growth this year (Q4/Q4), with slower growth in 2023-24 as monetary policy gets tight and the benefits of getting the economy back open eventually run out.”

—Brian Wesbury, “Monday Morning Outlook,” April 18, 2022

According to Brian, we are looking at some headwinds in the near future.

In the 41 years that I described above in the first paragraph, we can also be comforted to know that through the six recessions in that time frame, the US economy was expanding 88% of the time. That all being said, the impending recession is simply another current event ‘crisis’. Your best policy is to simply ignore it.

“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you need to go (emphasis added).” 

~ Benjamin Graham aka Warren Buffett’s teacher