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Economic Recession – History, Attributes, Predictors & Answers
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Ok so there’s no doubt about it, over the last few years we have been in the depths of a phenomenon that rears it’s ugly head only rarely, but with devastating effect; the economic recession. Both big and small corporate companies and the common man have all come face to face with the effects of the credit crunch. But history has shown that in times like these there are opportunities to be had and this time is no different. This article gives you an insight into the history of such a recession in the United States.
According to the economy experts, there have been around 32 precise cycles of expansion and contraction in the history of US recession which dates back to 1854. Keeping this figure in mind, it can be concluded that there have been around 32 economic recessions in about a period of over 150 years, quite a lot when you think about it!
Further examining these 35 cycles of expansion and contraction, it can be noted that there have been approximate 38 months of expansion that has been followed by nearly 17 months of contraction. It can be concluded therefore, that economic recessions in recent times have been fewer in number and comparatively much shorter than in the past. Here is a detailed analysis on the different periods of economic recession in United States over a period of 150 years.
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US Economic Recession History
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The old saying “History doesn’t always repeat itself, but often rhymes”, is based more on fact than fiction. By studying the US Economic Recession History, you should better understand how current recessions may affect your financial life today.
I focus on recessions simply because they have a dramatic effect on 401k balances and investments in general. During the last recession, which was officially from March of 2001 through November 2001, the major market indexes plummeted. The Nasdaq Index declined over 70% from it’s high within a year surrounding the recession. This index still hasn’t recovered. It is still only half of where it once was.
Could you have avoided this downfall by studying the US Economic Recession History? Maybe, but maybe not. Let’s look at the problem. The National Bureau of Economic Research (NBER) is the official agency that determines when recessions begin and end in history. Since recessions have such a detrimental effect on our investments, wouldn’t it be nice if they would notify us when one is beginning? Yes it would, but they don’t. The Nasdaq Index lost over 43% from its high before the NBER determined we were in our last recession. It took them 9 months after the beginning of the recession to announce it had begun. Is this a fluke? Unfortunately not. The official notification of the beginning of the last 4 recessions came an average of 228 days after they had already begun. This is an 8 month delay.
The way numbers work, if you lose 50% of your portfolio, you must earn 100% just to break even. If you had $100,000 and lost 50% ($50,000), you are left with $50,000. You must double this (100%) in order to break even. This is why it seems to be twice as hard to regain money after losing it. It took the Dow Industrial Index and S&P 500 Index around 6 years to get back to even after the last recession.
