Everywhere you look in financial news, writers are doing articles about Soft Landings. They say this or that and basically continue spreading hope about one of the historically trickiest things to pull off in any economy.
If everyone is so optimistic about our economy not going into a recession, then why have these maneuvers been almost impossible in the past? With all of our market sophistication and advanced economic learning, why have we only had one verifiable soft landing in 1995 since the mid 20th Century?
It’s because they’re almost a virtual impossibility.
There’s an article in the Wall Street Journal today about this phenomenon. It’s rather long and difficult to read, so I thought I’d simplify it for those of you who don’t have a PhD in Economics. These are the issues.
The Fed Tightens Too Much
The Federal Reserve Board doesn’t have a crystal ball. Our economy is huge and doesn’t move in one direction or change course very quickly. As such, it’s common for the Fed to keep interest rates too high for too long.
But let’s remember that managing interest rates is only one of the tricks in the Fed’s magic bag. They’re also in charge of lending money to banks so that the banks can have money to lend to us.
When they want to slow down the economy, they begin what is known as Fiscal Tightening where they hold onto money and don’t lend it to banks. This in turn trickles down to us and slows down the economy when we can’t borrow to finance our projects.
It’s hard for The Fed to know when to loosen things up because the economy is so sluggish. As such, they normally “over-do-it”. This normally pushes us into a recession.
People Just Keep Spending Money
What happens if the economy just won’t slow down? What happens when consumers and businesses keep buying stuff?
The demand for goods and services remains high. As such, inflation remains high as well. Given the last CPI numbers, this is something that seems to be currently happening.
Consequently, the Fed may be forced to continue tightening. This in turn…well you know the rest.
Energy Prices Take Off
As most recently seen in the inflation numbers, when oil prices and energy prices as a whole increase, inflation normally increases as well. This is an external factor outside of our control.
If OPEC decides to run off the spigot, there isn’t much that the Fed can do other than tighten their controls in response.
Other Nightmares
If there are other market issues like the banking crisis we had earlier, that can throw everything out of balance. Other geopolitical issues like war or the economic collapse of a trading partner can do the same thing.
All of these issues seem to be happening now. Between the War in Ukraine, China’s Economy crashing, and many banks teetering on collapse, it’s difficult to see a bright future.
If by some wild happenstance, we can get through all of that, then we can stick a soft landing. Any one of those things, all of which seem to be happening in one way or another, can push our economy into a recession.
Let me leave you with this.
If you happen to be 57 years old and have entrepreneured businesses for the past 33 years as I have, then the possibility of a recession isn’t that scary. I’ve steered my businesses through every nightmare we’ve had since November of 1990.
But if you’re new to this, I’m sure it’s a bit scary. Here’s a few basic tips that will allow you to gird your loins for battle.
You’ll work twice as hard for half as much.
This is just something you’ll need to accept. Not every year in business is going to be good. Some are lousy. No matter what you do, what you try, or how hard you work, it’s just not always going to be great. Accept this and move on.
Everyone loses something in a recession. Make sure its something you can afford to lose.
Your marriage, your health, your honor, your relationships with your family and friends… how can you replace these? Yet the inexperienced seem to sacrifice these first. Many of you may have something reposed by a bank or a finance company. Many may lose a business location, some equipment, a car, trusted employees, or your business entirely.
Which would you rather lose? Will you stubbornly hold onto that building while becoming an alcoholic in the middle of a divorce? Maintain your marriage. Your health. Your honor. Your relationships. Be an entrepreneur and the master of your fate. Choose your losses. Everyone loses something.
Get away from the front lines.
The guys that raised me and taught me about honor were the guys that fought in ’Nam and the Big One. Today its called post traumatic stress disorder. It used to be called being shell shocked, and later by the term battle fatigue.
You need to get away from the battle. The constant trauma of fighting the war takes its toll. Whether its a beach in the Caribbean, or a modest farm in Iowa, you’ll never make decent decisions if you can’t think straight. Any point in the middle of a fight is when you’ll need to make the best decisions of your career. Take the time to take care of yourself.
Cash is King
You’re going to have money problems. Period. Whether it’s problems collecting your receivables, inflation eating your profits, or any of the other nightmare that normally occur, you’ll need to be prepared.
Horde your money like a Nordic King. If there’s any fat in your roster, cut it now. If you need to renew your lines of credit, do it today before the banks stop renewals altogether. Think about taking a less expensive vacation.
If you’re already tight on money, think about how bad it could become in the middle of a recession. Make your plans now.
This isn’t a popular subject. Recessions aren’t a good time on a Saturday night, and I pray that I’m wrong. No one, least of all me, wants to go through another one.
But bad economies are just another part of good economies. The tides will always ebb and flow.
If you’re going to be an entrepreneur, you need to be able to handle these. It’s just another part of the job. Suck it up Marine. This is what you signed on for.
But do this knowing that you’re not alone. We’re all in this together.
If we do go into a recession, for many of you, these years might be the most difficult of your lives. Most will face adversity. Many may face abject failure. Your sales are down. Your collections are worse. The bank wouldn’t lend you a thousand dollars if you put twice that into a CD for collateral.
Your product is outmoded. You can’t pay your employees. The phone doesn’t ring. Even if you shut down your business, you couldn’t get a job because no one is hiring.
This is just how things could become. Get past it and move on. The next time you’re feeling alone or desperate, give me a call.
Because we’re all going to get through this. Let’s get through it together.
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