How Rising Interest Rates Trigger a Recession.

Posted on

It is safe to say that as unemployment climbs and interest rates continue to rise, the Federal Reserve’s emergency powers may be looking increasingly stretched. The question of whether these moves can trigger a recession must come into focus as we enter the second week of November.

Could rising interest rates lead to a recession?

Does this mean Wall Street could crash the party? Yes or no, economists should remain vigilant in their analysis of current markets and see if one could trigger an economic storm. There are only so many times an initial burst from higher inflationary expectations can drive them over the edge. It is just not sustainable and can set investors and financial institutions back at least seven years.

Before you think anything else, let us assure you our thoughts on what we are going to talk about here today, so allow yourself to relax for the first half of this discussion. When we have these kinds of discussions, we also should discuss how long a recession lasts before it takes us all down with it. Obviously, both will vary depending on the economy which may change and become more robust, but these types of conversations is helpful to help with our understanding on what might happen. For example, once we realize the size of the economy, we can determine how quickly things like wages would be adjusted. That allows us to better understand the type and magnitude of the damage to take place over the course of several quarters. If we know how quickly things would be pushed backwards, then perhaps we may want to prepare ourselves psychologically for what could occur.

Before you ask me to take risks or speculate any further, I must discuss why it has happened before and what could occur in the future. Remember that money is king when it comes to saving, so people want to spend even more. We saw this last year during the holiday season but did not see the full impact of it until late September. Once people realized that they were spending more, they began to realize that something bad was bound to go wrong. This holiday season is the best example of this because many people took out large sums of cash to celebrate Thanksgiving, but they did not realize how much money they had taken in when they received their gifts.

In addition to that, some others went shopping to make up for lost time and were disappointed when they did not see those that they wanted at their stores. From what we have seen of the holidays, there is always a tendency for consumers to have excessive amounts of savings. Most households have anywhere from $10,000-$20,000 in bank accounts. So even though we have been seeing an increase in household banking balances, the trend has changed. We now have a bigger pool of dollars than we did before the pandemic; however, we do not see the full impact of this yet.

With the amount of money being spent on goods we often forget the value of services we provide. Do we pay for gas, do we buy food, or do we buy healthcare? Each of these needs cost us far more money than we expected. And so we start to wonder why. Why can we pay for such high prices to obtain some of the goods when the services could be less expensive? Our wallets are filled with bills each and day. How is it possible that we can afford these prices? Maybe we just pay more for gas because we need gas and eat our way through dinner, but if we put a lid on the car and cut off 10,000 pounds of meat for a month, that still would not fill up our bank account in six months time. Maybe we get tired of paying with bills so we skip meals for a few days and save money for a vacation, but again you still have food costs to keep up.

Why would anyone pay such high prices each and daily? Even more importantly, why would anyone pay a premium on medical care? Shouldn’t we have gotten that instead of paying an already increased amount each and everyday? Who is to blame here? What did the rich do to get us to do so much and pay for so little? I don’t think that I have heard any economist give answers to this question so I feel confident asking this. These questions are what really make people think twice about the direction of the economy and what actions to take. I do not doubt anything.

I am sure that people do not realize that the world around them is changing from the previous and not necessarily in a positive way. Whether it has been an increase in taxes, a decrease in social security benefits, an increase in the number of working age adults, an increase in health care costs, an increase in housing costs, it seems that there is just nothing to be happy about. But people will think twice about taking any action in fear of losing their job and a lower income as a result. While we all want easy money, the reality is that nobody has got that. People will continue to be worried about the recession happening but won’t see it coming. They can also think about where the government is putting their tax money and find out that it isn’t benefiting them.

Will people finally realize that our politicians are just passing the buck over to us? Have you ever thought about how much your taxes are going towards welfare? Would you rather have to work with someone you don’t trust or just look at that person and tell him or her that his/her own policy hurts you and you can’t help it? Is it worth leaving people behind who may not even qualify for the programs? After all the people may seem like they want to support government programs, but a close examination of them shows that most are in fact hurting themselves and their family.

On another note, would you rather live in a small town with 5,000 people around you, or in a big city with 20,000 people and their families in their homes? Which I believe in personally and would prefer living in a smaller populated area but have a larger population is an aspect of myself. I am afraid a simple answer is that both of these options are possible in this country. You have choices, but sometimes we can only choose between two extreme options. Some people want to live a little simpler, they really want. Maybe I do too, but this is not a choice but a necessity to survive. As an individual, what I want is that I be able to enjoy life without having to worry about what my neighbor is doing.

We live in a society that is struggling to make ends meet. Those around us struggle because we are facing the same hardships everyone is dealing with. There are so many jobs that people work to get, and there are some that work to survive too. As the situation continues getting worse, maybe we could consider the idea of moving cities and finding other places that we could work and have more flexibility to make more room in our budget for luxuries. We do not want to miss on opportunities by staying in major metropolitan areas. Imagine having a home for yourself, a gym, and a library. Living this lifestyle would certainly be enough to live well and not fret about how the debt was making our heads hurt. Now imagine it can happen!

Maybe we are reaching breaking point, but this does not mean that the next couple decades for the rest of American history would be a mess. Maybe we can get past the next year and the next few years, and people can start building hope. Maybe it is just too late for us to stop spending, but maybe it’s not. No matter what happens, we can never be sure. Just wait and see!

Leave a Reply

Your email address will not be published.