We've Done This Before

Someone mentioned recently, we should stock up on butter, as the prices are going up dramatically. I guess when you look around, it is not rocket science to realize we are in the midst of inflationary times. I hesitate to call it a recession, as we may avert the dreaded ‘R’ word. 

I do realize, if you live long enough, you will weather several of these market corrections. In 2020, in this column, I wrote about paying down debt, as it would be expensive to borrow money in the future. It was not insider knowledge, but a simple ability to glance around and realize the government was handing out money left, right and centre. Did you really think there would be a ‘free lunch’?

I did a little digging to see how we handled previous downturns in the market, along with their associated interest rate increases and inflationary pricing. 

The first major market correction, which some of us remember, was in 1973. It was during the major oil crisis, when OPEC was cutting back, and we did not have gasoline for our vehicles. We were weathering Watergate and experiencing stagflation, which is what happens when prices stay the same, but wages drop dramatically. The markets fell 25%, so you can appreciate what that did to the economy. A mere five years later, the value of the markets quadrupled.

The next notch on the timeline was 1987. The stock market dropped 22% in one day. It was a Monday in October and is the reason many investors still will not buy stock in October. 2001 was a year we will always remember, especially if you held Enron or Nortel stocks. Portfolios fell by 12-15%, and caused many people to lose their life savings.

This was followed by 2008, which is now referred to as the financial crisis. It was a time when many of the Wall Street staples went under. Lending firms like Lehman Brothers, Bear Stearns etc. overextended themselves and bit the dust. The simple problem was, they had everything tied up in mortgages, and real estate prices suddenly  dropped. People could not pay their debt, and that was that. For those who remember that era, people lost their houses, sold cars at discount prices, and worked two, sometimes three jobs, just to make ends meet. It was probably the toughest time financially, since the crash of 1929. We dropped about 20% then, but five years later we were up quite a bit.

The Feds are raising interest rates in an effort to keep us from spending money, which hopefully, will decrease inflation. Times are difficult and it is hitting us hard, especially since we have been in a pandemic. Three things in life are guaranteed: death, taxes and the economy will again come back.