6 ms·

Too young to understand what happened in the 2008 GFC but I doubt the 'feeling prepared' part works like this. First of all, the recessions tend to last longer

Too young to understand what happened in the 2008 GFC but I doubt the 'feeling prepared' part works like this. First of all, the recessions tend to last longer than most people expect/plan for. Statistically, it will turn out their 'secure' jobs will be less 'secure' than expected. Meanwhile their emergency funds will start shrinking (slowly at first, then all at once) due to loss of purchasing power & eventual job loss. However, I'm optimistic on the long term because I think only recessions can correct the (massive) mis-allocation of capital that we experienced the past decade due to ultra-low interest rates.

PretzelPirate 4y ago
This seems too pessimistic without knowing specifics about the original commenter’s situation. I have no debt, a fully paid off house, and plenty of cash which has left me feeling confident about any upcoming recession. Could I get fired from my well-paying job tomorrow, the recession lasts for 5 years, and the food supply runs out so we all starve to death? Sure, but it’s probably not worth calling out. I was in college during the 2008 recession and fully supporting myself. I was able to get by with less than I have now because I didn’t have a ton of debt.
- samsonradu 4y ago
  I used the word ‘statistically’ to underline the fact that it will not happen to everyone, and specially not to the commenter in particular.
jghn 4y ago
IMO at some point these sorts of disaster scenario thought experiments wind up in a place where if it happens, we're all pretty screwed anyways. Do I have sufficient funds to survive for a while in a typical recessionary environment? Yes. If the shit really hits the fan, markets crash to next to nothing, real estate craters, etc and this lasts for multiple years well yeah. I'm in trouble. But that'll be true of just about everyone and we're probably looking at general societal collapse at that point.
- samsonradu 4y ago
  I didn't paint it as a disaster scenario. Having no emergency funds doesn't mean one will starve. Just to give some examples of a recession being worse that one expects: - I might need to sell my 4-bedroom house and move into a smaller house because I can't afford mortgage; - I might need to skip vacations this year because I got a pay cut; - I have to sell my car and use public transport because I need money and gas is too expensive anyway; IMO these are situations people are not generally anticipating or prepared for.
nh23423fefe 4y ago
But you just responded point by point with non-sequiturs. I made a comparison between 2007 and now, while you just stated ignorance of the past and made pessimistic assertions of my ability to estimate relative security. Meanwhile you hold a belief like, "the future will be good because capital will be allocated better"
- samsonradu 4y ago
  I used the word ‘statistically’ to underline the fact that it will not happen to everyone, and specially not to you in particular. > Meanwhile you hold a belief like, "the future will be good because capital will be allocated better" Yes
  - vorpalhex 4y ago
    Do you have any actual statistics or are you just saying you do to borrow an air of authority?
    - samsonradu 4y ago
      That sounds a bit rude, but I'll try to answer anyway. No, I don't have the statistics at hand but I think we can agree that a lot of people go through financial hardship during a recession - basically what a recession means. What part of my comment do you disagree with exactly? That people, in general, overestimate their financial security and capacity to overcome recessions?
      - vorpalhex 4y ago
        I disagree with this: > First of all, the recessions tend to last longer than most people expect/plan for. Statistically, it will turn out their 'secure' jobs will be less 'secure' than expected. Meanwhile their emergency funds will start shrinking (slowly at first, then all at once) due to loss of purchasing power & eventual job loss. Those predictions are not supported by the data, and are distinct from your description of them. I disagree with your implied statistics and sloppy use of words. I am skeptical that you can forecast the length of the recession, job loss, or changes in consumer behavior.
Shikadi 4y ago
Unfortunately, recessions tend to shift wealth up even more these days, partially because of government bailouts, but also because of stock puts and shorting
pwinnski 4y ago
I'm old enough to remember 2008 and several other recessions as well, and "feeling prepared" works exactly like that. Not all jobs are secure during a recession, but job security is relative--and often knowable. Emergency savings are something few people actually have, and can make a world of difference when times are hard. On the other hand, there is no guarantee whatsoever that capital will be better allocated after a downturn. After all, 2008 came post-2001, and here we are post-2008, with capital as misallocated as ever!
- voisin 4y ago
  > On the other hand, there is no guarantee whatsoever that capital will be better allocated after a downturn. After all, 2008 came post-2001, and here we are post-2008, with capital as misallocated as ever! I think the mis-allocation is due to rates not rising fast enough after the crisis is over. Terrifyingly fast to drop and equally terrifying (in retrospect) how slow they rise.
- doktorhladnjak 4y ago
  I'm at a VC-funded, private company (too mature and big to be a "startup" anymore). I hear my coworkers talk about how we're all safe because the company won't go away and is profitable, but that's not always how it works. Very few jobs are truly secure ever. Your company can avoid being impacted by the macroeconomic situation of a particular recession or financial crisis, but that doesn't mean you won't be fired or laid off or need to quit your job, then find a new one in a less than great job market. I've been through layoffs at more economically sound companies where the leadership decided something had to be done to mollify shareholder anxiety about the larger economic situation. I've been through layoffs at companies where the writing was on the wall (especially in retrospect). I worked with somebody who developed a major health problem during our time as coworkers. He had to quit because he couldn't do the work until that was squared away. It took him years to be well enough to work again, and by then he needed to live near family in a lower wage/higher cost of living area that still scrambled his financial plans. Most of us have worked at a company where a new boss came in, and some people just didn't get along with them or didn't see eye-to-eye on whatever or otherwise couldn't work there anymore. Or where there's a reorg and suddenly the work isn't a match anymore. Everyone should be prepared at any time. If fear of recession gets folks thinking about that, great. But they should do it regardless.
nonameiguess 4y ago
What does "statistically" mean here? Even if unemployment jumps to double digits, which hasn't happened in the US since 1982, that means 93.6% of working people (0.9 / 0.961 to not inadvertently count people who are already unemployed) will continue being able to work. That's a near worst-case scenario that seems pretty damn statistically secure to me.
- doktorhladnjak 4y ago
  If you're the 1 in 10 or 12 without a job, it's obviously personally impactful and stressful to you. It's also worth bearing in mind that when unemployment is high, there are many companies that stop or slow hiring, sticking with current staff. Many fewer are hiring at all. If there is 10% unemployment, you'd expect the number of available jobs to shrink by much more than 10% vs full employment. Losing your job compounds because finding a new one at all or at least a new one that pays the same can be harder.
aperson_hello 4y ago
Recessions are largely unequal in impact. Those who are prepared and/or who don't lose their jobs generally come out OK. Those who get laid off with no backup options are the ones who get screwed. Predicting the future is always challenging. But preparing for a range of unknown outcomes is often doable.

PretzelPirate 4y ago

This seems too pessimistic without knowing specifics about the original commenter’s situation. I have no debt, a fully paid off house, and plenty of cash which has left me feeling confident about any upcoming recession. Could I get fired from my well-paying job tomorrow, the recession lasts for 5 years, and the food supply runs out so we all starve to death? Sure, but it’s probably not worth calling out. I was in college during the 2008 recession and fully supporting myself. I was able to get by with less than I have now because I didn’t have a ton of debt.

samsonradu 4y ago
I used the word ‘statistically’ to underline the fact that it will not happen to everyone, and specially not to the commenter in particular.

jghn 4y ago

IMO at some point these sorts of disaster scenario thought experiments wind up in a place where if it happens, we're all pretty screwed anyways. Do I have sufficient funds to survive for a while in a typical recessionary environment? Yes. If the shit really hits the fan, markets crash to next to nothing, real estate craters, etc and this lasts for multiple years well yeah. I'm in trouble. But that'll be true of just about everyone and we're probably looking at general societal collapse at that point.

samsonradu 4y ago
I didn't paint it as a disaster scenario. Having no emergency funds doesn't mean one will starve. Just to give some examples of a recession being worse that one expects: - I might need to sell my 4-bedroom house and move into a smaller house because I can't afford mortgage; - I might need to skip vacations this year because I got a pay cut; - I have to sell my car and use public transport because I need money and gas is too expensive anyway; IMO these are situations people are not generally anticipating or prepared for.

nh23423fefe 4y ago

But you just responded point by point with non-sequiturs. I made a comparison between 2007 and now, while you just stated ignorance of the past and made pessimistic assertions of my ability to estimate relative security. Meanwhile you hold a belief like, "the future will be good because capital will be allocated better"

samsonradu 4y ago
I used the word ‘statistically’ to underline the fact that it will not happen to everyone, and specially not to you in particular. > Meanwhile you hold a belief like, "the future will be good because capital will be allocated better" Yes
- vorpalhex 4y ago
  Do you have any actual statistics or are you just saying you do to borrow an air of authority?
  - samsonradu 4y ago
    That sounds a bit rude, but I'll try to answer anyway. No, I don't have the statistics at hand but I think we can agree that a lot of people go through financial hardship during a recession - basically what a recession means. What part of my comment do you disagree with exactly? That people, in general, overestimate their financial security and capacity to overcome recessions?
    - vorpalhex 4y ago
      I disagree with this: > First of all, the recessions tend to last longer than most people expect/plan for. Statistically, it will turn out their 'secure' jobs will be less 'secure' than expected. Meanwhile their emergency funds will start shrinking (slowly at first, then all at once) due to loss of purchasing power & eventual job loss. Those predictions are not supported by the data, and are distinct from your description of them. I disagree with your implied statistics and sloppy use of words. I am skeptical that you can forecast the length of the recession, job loss, or changes in consumer behavior.

Shikadi 4y ago

Unfortunately, recessions tend to shift wealth up even more these days, partially because of government bailouts, but also because of stock puts and shorting

pwinnski 4y ago

I'm old enough to remember 2008 and several other recessions as well, and "feeling prepared" works exactly like that. Not all jobs are secure during a recession, but job security is relative--and often knowable. Emergency savings are something few people actually have, and can make a world of difference when times are hard. On the other hand, there is no guarantee whatsoever that capital will be better allocated after a downturn. After all, 2008 came post-2001, and here we are post-2008, with capital as misallocated as ever!

voisin 4y ago
> On the other hand, there is no guarantee whatsoever that capital will be better allocated after a downturn. After all, 2008 came post-2001, and here we are post-2008, with capital as misallocated as ever! I think the mis-allocation is due to rates not rising fast enough after the crisis is over. Terrifyingly fast to drop and equally terrifying (in retrospect) how slow they rise.
doktorhladnjak 4y ago
I'm at a VC-funded, private company (too mature and big to be a "startup" anymore). I hear my coworkers talk about how we're all safe because the company won't go away and is profitable, but that's not always how it works. Very few jobs are truly secure ever. Your company can avoid being impacted by the macroeconomic situation of a particular recession or financial crisis, but that doesn't mean you won't be fired or laid off or need to quit your job, then find a new one in a less than great job market. I've been through layoffs at more economically sound companies where the leadership decided something had to be done to mollify shareholder anxiety about the larger economic situation. I've been through layoffs at companies where the writing was on the wall (especially in retrospect). I worked with somebody who developed a major health problem during our time as coworkers. He had to quit because he couldn't do the work until that was squared away. It took him years to be well enough to work again, and by then he needed to live near family in a lower wage/higher cost of living area that still scrambled his financial plans. Most of us have worked at a company where a new boss came in, and some people just didn't get along with them or didn't see eye-to-eye on whatever or otherwise couldn't work there anymore. Or where there's a reorg and suddenly the work isn't a match anymore. Everyone should be prepared at any time. If fear of recession gets folks thinking about that, great. But they should do it regardless.

nonameiguess 4y ago

What does "statistically" mean here? Even if unemployment jumps to double digits, which hasn't happened in the US since 1982, that means 93.6% of working people (0.9 / 0.961 to not inadvertently count people who are already unemployed) will continue being able to work. That's a near worst-case scenario that seems pretty damn statistically secure to me.

doktorhladnjak 4y ago
If you're the 1 in 10 or 12 without a job, it's obviously personally impactful and stressful to you. It's also worth bearing in mind that when unemployment is high, there are many companies that stop or slow hiring, sticking with current staff. Many fewer are hiring at all. If there is 10% unemployment, you'd expect the number of available jobs to shrink by much more than 10% vs full employment. Losing your job compounds because finding a new one at all or at least a new one that pays the same can be harder.

aperson_hello 4y ago

Recessions are largely unequal in impact. Those who are prepared and/or who don't lose their jobs generally come out OK. Those who get laid off with no backup options are the ones who get screwed. Predicting the future is always challenging. But preparing for a range of unknown outcomes is often doable.