After receiving quite a few questions about our current recession and other concerns about the U.S. Economy I thought it would be good to share a bit about the history of economic cycles in the U.S.
The only thing that remains the same is that things always change. We have had numerous recessions over the last century and we have had numerous times of economic prosperity. It comes, it goes, and repeats again.
The U.S. stock markets generally provide a good indicator of how the economy is performing. Below I have a spreadsheet that I found that shows the history of past Bear Markets or recessions. It is very encouraging to notice that of the 24 bear markets during the last century, none of them have lasted more than 3 years with the average length being only 15 months.
Another important thing to remember is that on average, 1 year after the bear market is completed, the market (DJIA) is up 44%. In fact there was only 1 time out of 24 that a year later it wasn’t better than it was when the recession ended.
The bottom line of all this is that recessions are a normal part of the cycle. We have high times and low times. The U.S. is just in a bit of a low time right now. History is not a perfect indicator of the future, but it is about the best predictor we have. Using the data from the previous recessions, it is pretty reassuring that everything is going to be okay. In fact, I would be willing to bet that shortly after this recession ends we will have a huge economic boom. That just seems to be the next phase of the cycle.
{ 2 trackbacks }
{ 4 comments… read them below or add one }
I, too, believe the economy goes in cycles. I hope that with the next boom (and there will be one) that people remember the pain of this recession. Will they? Doubtful. But maybe.
My dad recalls a similar time about 30 years ago when the economy was in the pits. For one reason or another, banks were offering really high interest rates on CDs (like, higher than 10%) so they could get cash.
Because my dad had cash at the time, he was able to really grow his money.
I’d LOVE to see savings and CD rates take a big jump soon. Dunno if it’ll happen, but I’ll be ready!
Kacie,
you are right – when challenging times hit, there really seem to be some good opportunities that open up…
The same historical analysis can convince someone investing in the Japanese stock market that they should continue investing even after the 1990 banking crisis. Then what followed was a long 18-year depression. Look at the Nikkei 225 index. What happened in Japan in 1990 is exactly the same as what is happening in America right now! If you have FAITH that the stock market always goes up, ask yourself whether the Biblical quote “you cannot worship both God and Money” applies to you.
David,
I appreciate your insight, however your comment at the end is uncalled for and a uninformed. If you have been around the site at all, it will become very clear that God is always the site’s and my priority.