Why Non-Transitory Recession is Coming and How to Face it as an Investor

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Recessions are like forest fires – small ones are healthy for the forest. However, the longer you suppress fire, the more dead material the forest accumulates. Eventually, when it does pay a visit, it is more devastating and its effects are more long-lasting. The recession that is coming could be a big fire.

I am not an economist, but, looking at this picture, it is hard to see how we can avoid a recession. Ironically, we’ve been in a recession most of 2022 – real GDP declined in the first and second quarters. Economists attributed declining GDP to a “transitory” recession caused by an overhang of pandemic-induced supply chain issues.

As inflationary pressures squeeze consumers from all directions, they simply will not be able to buy as many widgets as they bought the year before. Demand for widgets will decline; companies will have to readjust their workforce to the realities of new demand and thus reduce their employee headcount; and this will lead to higher unemployment. All this, in turn, will lead to lower demand, and voila, we’ll find ourselves in a non-transitory recession.

Recessions do not worry us. Though I am sympathetic to people losing jobs and suffering economic hardships, recessions are a natural part of the economic cycle. They force both companies and individuals to become more efficient and thus make them stronger in the long term.