The Potential of W

Don’t worry.  This isn’t a political posting about our former president. 

Most people expect a recovery from this recession to come in a V shape.  The economy was at a peak, it has fallen into a valley and seems to be heading in a generally upward direction – in other words it looks like the letter V. 

We Americans tend to think about the economy in what I call “The Eternal Now”.  I don’t mean that in a positive metaphysical way of living for the moment.  I mean that we tend to think that whatever is happening now will happen forever. 

When the stock market was booming, people didn’t want to keep any money in safe cash type investments.  They wanted all their money in the stock market where it would – they assumed – always be growing.  People borrowed against the value of their home because the house would be worth more tomorrow than today and they could always just sell it if they needed to.  They paid for everything with a credit card because their income would always go up. 

Sound familiar?  And now too many of the folks who were thinking this way have no money for emergencies, had to sell stock market investments at a low to pay for necessities and can’t pay their mortgages because they lost their job. 

The economy has started a shaky move up, but some of the things that are helping it could cause it to take another sizeable dip before it’s truly recovered.  The government obviously can’t bail out everyone forever.  And the influx of government money in the economy could cause inflation, which could cause another dip in the markets and our general productivity.

So if you’re starting to get back to some of the bad habits that got us into a recession in the first place, stop.  Spend less than you make.  Build up an emergency fund in something really boring like a bank savings account.  Don’t fund your life with debt.  The recovery may look more like a W.  It may go up, then go back down, before it starts a more steady recovery.  Your job isn’t to predict the economy.  Your financial responsibility to yourself is to be prepared if things aren’t smooth in the economy.  Then you’ll be part of the solution, not part of the problem.