After months of constantly rising inflation, discussion of the economy has begun to turn towards the R-word: recession. The shock of a first quarter that saw GDP contracting, when everyone expected it to expand, was the first clue that recession was on the horizon. And the rosy predictions for the second quarter gradually eroded, with the expectation now being that Q2 will feature another quarter of economic contraction.
The technical definition of a recession has always been two consecutive quarters with declining GDP. But with the midterm elections coming up quickly, the Biden administration wants to minimize discussion of recession. A recession officially being declared before the election would all but completely doom the chances of any Democratic successes in November.
That’s why we’re starting to hear the usual spin from the White House about why this recession isn’t really a recession. Treasury Secretary Janet Yellen is doing her darnedest to try to explain how the shrinking economy isn’t actually in recession, and how everything is doing just fine.
You have to remember, however, that the same people who are trying to claim now that the US economy is not in recession are the people who first ignored inflation, then claimed it was transitory, and then tried to claim that it had peaked. And yet all the while inflation has continued to climb. So if we can’t trust them on inflation, how can we trust them on recession?
What Is a Recession?
While the technical definition of recession is two consecutive quarters of declining GDP, that isn’t to say that it’s the only definition of recession. The National Bureau of Economic Research (NBER) is the entity in the US that officially defines recessions, and it takes into account a wider array of factors than just GDP.
For one thing, you can have recessions that last less than two quarters, such as the recession of 2020, which saw a short GDP drop but one that rivaled the Great Depression in its severity. It’s also theoretically possible to have GDP declines without being in a recession.
That’s because GDP includes government spending as one of its components. If the government spends less money and causes GDP to fall, but private sector activity continues to increase, can that really be called a recession?
Of course, that’s not what’s happening today. The US economy really is slowing, but the powers that be don’t want to admit it, just like they didn’t want to admit it in 2008. No one wants a recession, but especially not in an election year, so they’ll do everything they can to deny it until they absolutely have to acknowledge it.
Right now administration officials are pointing to the low unemployment rate as one reason we’re not in recession right now. But what happens if we end up having a recession with relatively low unemployment? That isn’t inconceivable.
Remember that the stagflation of the 1970s featured both high inflation and high unemployment, something that the prevailing economic orthodoxy said wasn’t supposed to happen. So why couldn’t we have a recession with a low unemployment rate? That’s especially possible since the statistics surrounding employment have been monkeyed with to make the unemployment rate seem lower than it otherwise would be.
What We Could See
What we’re going to see from both the administration and the media is an attempt to downplay just how bad the economy is. While everyone knows that prices are going up, there are still many people who are willing to swallow the company line, namely that inflation is the result of greedy corporations trying to make more money, or the result of Putin’s war against Ukraine. As long as people continue to buy those fairy tales, it’s unlikely that those people will be willing to open their eyes to the reality of a coming recession.
Even today you’re starting to see some mentions of recession in the mainstream media, albeit subdued mentions. When you do see someone acknowledging the likelihood of recession, you’ll often read that the recession is going to be mild, or that markets are already starting to price in the impact of a recession.
This is an attempt to mollify voters, to keep them from getting angry at a government whose spending has helped spur inflation, and a Federal Reserve that tried to deny reality for too long. As the recession worsens, expect to hear gradually more discussion of the recession, until it’s so plainly obvious that no one can deny it. And by that time the people who at first tried to deny that a recession was occurring will likely try to act as if they knew a recession was coming all along.
We’re seeing a repeat of 2008, when Treasury and Fed officials tried to tell us in early 2008 that housing market weakness wasn’t going to spill over into the broader economy. By the fall, Treasury and the Fed were warning that the financial system was on the verge of collapse, and urged Congress to enact a $700 billion bailout of the banking system.
So the next time you read about how the US isn’t really in a recession, or how the recession is going to be a mild one, remember the history behind those kinds of pronouncements, and remember that the more often you hear from government officials that we’re not in a recession or not going to be in a recession, the likelier it is that a recession is on its way.
Unlike 2008, we have the benefit of foresight today and we can see what’s coming. So there’s no reason to leave your assets exposed to the kinds of losses that many people experienced in 2008.
Many people have already decided to protect their assets by buying gold, whether that’s through a gold IRA or through direct purchases of gold coins. The process of buying gold is straightforward, simple to understand, and relatively quick, so why leave your wealth at risk of severe loss in the event of a major recession?
With over $1 billion in precious metals placements and over a decade of experience, Goldco’s precious metals experts are ready to help you navigate the world of precious metals. Call Goldco today to learn more about how gold can help you safeguard your savings.