Is a recession structural or psychological?
The ‘R’ word.
‘Recession’ is on the back of most of our minds. Everything was going along just fine and then boom the worry machine starts.
A rule of thumb is that a recession is two consecutive quarters of shrinking GDP. Are we in one now? We won’t technically know for another few months. But listen to your TV news reporters patrolling the stock exchanges, see the worldwide tumbling of stock markets, and feel the effects of your stock portfolio shrink and it’s no longer academic.
You are on the roller coaster and you didn’t even know you bought a ticket. Today the market plummeted 300 points and closed plus 300. A 600 point swing. That’s volatility.
How did the sky begin to fall (if it did at all)?
Is a recession a structural problem or a psychological problem?
Certainly, when fear takes hold, perception drives behavior and we head for the exits. But underneath that there is the structural issue.
Structure drives behavior. Just as a river has an underlining riverbed that shapes the behavior of river the underlying structure shapes the behavior of the US economy and your business.
Structural forces can strengthen and weaken the economy. Growth, productivity, value creation, fiscal and monetary policy must contend with the housing market slowdown, the subprime mortgage debacle, oil prices skyrocketing, the weak dollar, rising food prices, overextended credit card delinquencies and job losses that are immediately felt. These forces are driving the behavior of the markets and your decisions. They effect our time horizon and what we think is possible.
I asked my stock broker if the sky was falling and he said this is the cycle, history will repeat itself, things will get better, but it will be rocky for awhile. But I didn’t want the history lesson. I wanted the structural forces lesson. What and how were the structural forces at play so I could make an informed decision now, instead of a reactive emotional issue to my stock portfolio dropping.
A recession is both structural and psychological.
To take advantage of the situation
Advantage-Makers shift perceptions and work with the structural forces at play to form their judgments, or use their influence to change the structural dynamics.
The stimulus package of fiscal and monetary policy, by the President, Congress and those proposed by the Presidential candidates must address the underlying structure. Short term and long term solutions must reduce structural impediments and structure us to be competitive to be able to win. Otherwise, a 75 basis point rate reduction by the Fed generates fear and uncertainty instead of stability.
We look to our leader for structural solutions. Specifically, their ability to spot the structural forces and influence them for the common good.
Think as an advantage-maker.
