You might have a friend or an elder cousin suggesting you get rid of your loans.
A large number of Americans including financial experts believe that a recession is right around the corner and if it strikes, it will be nothing less than a Zombie Apocalypse.
Such thoughts are increasing due to the trade war between Trump administration and China as well as the briefly inverted yield curve of the stock market.
People are also expecting better interest rates on short-time investments and lower rates on the long-term ones.
First things first, you might be thinking what a recession is? Why people are suggesting you pay off your debts and update your resumes despite the fact you are not applying for a job in the foreseeable future?
You are not alone if you have such doubts because it means you’ve never been through a recession before. As a matter of fact, 40 million US adults have not experienced a recession and are wondering what it is like to experience one.
BuzzFeed News talked to Mark Gertler from New York University and Pete Klenow from Stanford University to get some expert advice on the matter.
These two professors are serving as directors of the Economic Fluctuations and Growth Program, a subsidiary of the National Bureau of Economic Research. This is the very organization which releases the dates of recession and tell the potential stakeholders about what it may bring with it.
To put it simply, a recession is a continuous downfall of the economy.
According to the National Bureau of Economic Research (NBER), it is “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
The last recession, known as the Great Recession, started in December 2007 and ended in June 2009. It was the worst of all recessions ever since the Great Depression of the 1930’s.
The scope of this recession was so awfully large that people are still facing its impacts in the form of stagnant wages, delayed retirement, and delayed childbirth and marriages.
Speaking of the Great Recession, one user wrote in response to a BuzzFeed’s article on recession: “We had to work so hard to get back on our feet with two kids, after going from six figures to food stamps.”
The good part is, the last recession was an exceptional case. In fact, it was greater in amplitude than any of the 11 recessions the US has seen since World War II.
But don’t get your hopes high yet. It can still be difficult to find a stable job during a recession of any magnitude no matter how qualified or skilled you are.
The biggest effect of a recession is always upon the job market, making it tough and more competitive.
In October 1982, the unemployment rates increased by 10% due to recession, and the Great Recession of 2007-2009 also increased them by 10%.
Recession pushes companies to stop hiring and downsize the existing workforce. It means even if you have a job, there are high chances of you losing it.
A BuzzFeed user wrote in the wake of the 2007-2009 recession: “My law firm laid off a bunch of lawyers and rescinded its offer to all its incoming lawyers. It took me 14 months to find another legal job, and even then, it was very low-paying because I felt like I needed to take any job.”
According to Economic Fluctuations and Growth Program, people who have a college degree face a lower risk of losing their jobs than the low-wage workers.
According to a report by the Brookings Institution, “college raises average lifetime earnings, and it also helps insulate workers from economic downturns, providing economic security in the times they need it most.”
As the companies struggle for finances, you might get a low starting than those who started during the better times but it is good to grab any opportunity because there are not much available during such times.
Another effect of recession can be that the senior employees get retired earlier than expected.
According to Gertler, evidence suggests that employees who are affected by the downsizing have a hard time finding a job and are retired early even if they get one.
Here’s an account of a BuzzFeed user who saw this happening closely during the 2007-2009 recession.
He wrote: “Dad got laid off after working for a great company for 17 years in 2008. He said it was one of the saddest times of his life.
“He used part of his 401(k) to help pay the mortgage, found full- and part-time work here and there, but being in the manufacturing field during the recession, he would get laid off again and again. He eventually had to retire early due to disability at 61 years old and used the rest of his 401(k) to pay off the mortgage.”
Recession decreases the money circulating in a country’s economic system, so it becomes very difficult to get loans during a recession.
This is also partly because people are being fired at a large scale and wages are dropping continuously, which forces the banks to adopt stricter policies for lending money.
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