Jaspreet Singh Says America’s Economy Is About To Get a Reality Check, Here’s Why
The average American may not be very well versed in some of the bigger economic indicators to know if the economy is headed toward a recession or not. We rely upon financial and economic experts to do that for us.
One such expert, Jaspreet Singh, entrepreneur and founder of the Minority Mindset, who runs a YouTube Channel on financial education, recently posted a video titled “America is Going to Get a Reality Check” that explains some key economic signs that Americans will want to pay attention to in order to stay financially sound in the coming year. Heeding Singh’s warning may save Americans from financial distress down the road. Here’s the gist of his video and what he’s saying.
Labor Shortages
Singh regularly pays attention to financial indicators wherever he goes. Recently, in two big American cities, Manhattan and Detroit, he encountered establishments that were struggling because they couldn’t find enough labor to run operations efficiently. One was a deli and convenience store, the other was a Burlington Coat Factory retail store. The coat factory was so understaffed that it closed down on the weekends despite having willing customers ready to spend money. Labor shortages could be a sign of impending economic problems. However, what Singh really wanted to focus on is American spending habits and their relationship to inflation.
The Inflation/Spending Dilemma
According to economic indicators and the Federal Reserve, the American economy still has an inflation problem. While inflation has cooled some since its epic recent peak, it hasn’t done so enough to reduce consumer spending. And why should Americans stop spending when it powers the economy? Because hearty spending unfortunately drives inflation. Therefore, the Federal Reserve has been raising interest rates to cool spending as a way to reduce inflation. It’s a kind of vicious cycle that is hard to break but necessary so that inflation doesn’t make our goods and services too expensive to afford.
Spending, however, is not just reserved for cash. People can also spend through credit cards, home equity lines of credit and even borrowing from their retirement accounts. As long as people have the ability to spend in all of these ways, the economy remains hot, and so does inflation.
Aggressively High Interest Rates
Though things are looking good right now, Singh warned that it’s a false lull, and there is an economic shift coming as a result of these higher interest rates. These rates are some of the highest set since 1981, the last time the Federal Reserve raised rates this aggressively.
Higher interest rates make borrowing money more expensive — not just for individuals on purchases like mortgages and car loans, but for businesses that may be trying to invest in new infrastructure or services, and for the government, which has to borrow money against its debts. Higher interest rates mean everyone is paying more for their money.
Additionally, he said, history shows that of the 14 recent rate hiking cycles in the modern economy, 11 of those ended in recession. While it’s not a guarantee of recession, Singh suggested there’s a strong chance that this rate cycle will end in one. In 1981, after The Fed raised rates as aggressively as they are doing now, the U.S. saw a recession in 1982, with unemployment reaching a high of 10.8%.
Are We Facing a Recession?
So, raising interest rates is likely to have an impact on the economy, but when? According to economists, Singh said, people will burn through their cash reserves, savings and 401(k) withdrawals by the end of 2023. But people will continue spending through credit cards, home equity lines of credit and other loans until around the second quarter of 2024. It’s between April and June of 2024 that the country may feel signs of recession.
How To Prepare?
So what does this mean for the average American? It’s hard to say exactly how a recession will affect any specific person or family –though one common symptom is high unemployment — but Singh urged Americans to educate themselves now about saving money, investing money and paying attention to their spending to get ahead of this coming possible recession. This is not the year to make big purchases, but a year to get financially smart, he explained.
“It’s important to understand what’s happening, build financial education and preparedness. Now is the time to be prepared so you’re not one of the people panicking and suffering,” he said.
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