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Recession/Inflation what happens?
Old 12-12-2018, 05:23 PM   #1
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Recession/Inflation what happens?

I know upfront, that this is not a smart question, but... let's say that there is a recession in 2020... What happens to cash? and, more important to me, what happens to inflation?

What happens to what we have to pay for every day life needs? If I have $100 in cash, to buy groceries, or pay my utility bill, what happens to the cost of those needs?

Simple question, but I can't remember what happened in 2009.
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Old 12-12-2018, 05:34 PM   #2
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In a recession some people lose their jobs and others become fearful about their jobs. They spend less, so merchants and producers sell fewer goods. They lower prices to try and stay in business.
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Old 12-12-2018, 05:42 PM   #3
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In a recession some people lose their jobs and others become fearful about their jobs. They spend less, so merchants and producers sell fewer goods. They lower prices to try and stay in business.
Exactly, at least in the deep of recession. I have been waiting to rebuilt a vacation home when we hit recession.
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Old 12-12-2018, 06:31 PM   #4
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Makes sense, but looking at the period from 1929 to 1933, the dollar lost 25% while between 2009 and 2013, the dollar gained 10%.

What I really wondered about was whether staying in cash would be the best way to go.

Maybe more factors. Maybe not so simple.
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Old 12-12-2018, 10:47 PM   #5
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Makes sense, but looking at the period from 1929 to 1933, the dollar lost 25% while between 2009 and 2013, the dollar gained 10%.

What I really wondered about was whether staying in cash would be the best way to go.

Maybe more factors. Maybe not so simple.
Well that's less than 2% a year.
Usually in a recession inflation goes down. Maybe one reason 2009 didn't go to a full depression was the central banks worked hard to keep higher liquidity at lower interest rates to encourage consumption and keep deflation at bay.
The only recession with inflation I know of is the 1970s where the US came off the gold standard and then OPEC uped the overall costs of production. Don't foresee that happening again, but some other Black Swan could (will) eventually come around.
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Old 12-12-2018, 10:56 PM   #6
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What I really wondered about was whether staying in cash would be the best way to go.
I would recommend that your strategy about what to do not be based on guessing what the economy is going to do, including inflation. Just have a diverse portfolio and a safe AA and you will be fine, whatever happens.
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Old 12-13-2018, 05:34 AM   #7
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Makes sense, but looking at the period from 1929 to 1933, the dollar lost 25% while between 2009 and 2013, the dollar gained 10%.
Unless you are planning on traveling abroad or buying foreign assets, the value of the US$ doesn’t make much difference.

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What I really wondered about was whether staying in cash would be the best way to go.
I thought you did not invest in equities.

Bonds are the best asset to own in a recession. If You need to buy them, though before everyone else, and before the prices rise.
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Old 12-13-2018, 06:52 AM   #8
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Originally Posted by imoldernu View Post
Makes sense, but looking at the period from 1929 to 1933, the dollar lost 25% while between 2009 and 2013, the dollar gained 10%.

What I really wondered about was whether staying in cash would be the best way to go.

Maybe more factors. Maybe not so simple.
Like MichaelB said, this has no bearing unless you are using foreign currency for some reason.
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Old 12-13-2018, 06:56 AM   #9
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Inflation usually drops during a recession. Sometimes even deflation threatens - something the Fed usually fights with aggressive interest rate lowering.

Cash and high quality bond funds do well during recessions. Corporate/high yield bonds and stocks suffer.

You can also find more deals as recessions mean that business has dropped, so companies are hungrier for your business. In 2008-2010, travel costs dropped, contractors were much easier to find, houses much cheaper to buy, etc. If someone has the savings, they are in a position to take advantage.
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Old 12-13-2018, 09:24 AM   #10
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Unless you are planning on traveling abroad or buying foreign assets, the value of the US$ doesn’t make much difference.

I thought you did not invest in equities.

Bonds are the best asset to own in a recession. If You need to buy them, though before everyone else, and before the prices rise.
Thinking it through, I realize you are right about the US $$$ value.

Truth be told, except for the basic HOA cost, Insurance...( car house health)... our biggest expense is food.

Except for a few stocks, gained through employment a long time ago, most of our money is in bonds and a fixed annuity. The debate comes when it's better to sell bonds that are inflation adjusted, or to sell off our vacation retreat. We'll be coming to the first time of selling assets, so taxes will play a part for the first time in 20+ years. After that, when we move to independent living in the apartments in our CCRC, the sale of our house should make for an easy transition, moneywise. That alone will cover our cost of living for six plus years.

All in all, it seems that any concern about recession/inflation may be overblown in our case. Darn few great benefits about growing old, but maybe this is one of them.
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Old 12-13-2018, 09:37 AM   #11
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Originally Posted by imoldernu View Post
Makes sense, but looking at the period from 1929 to 1933, the dollar lost 25% while between 2009 and 2013, the dollar gained 10%.

What I really wondered about was whether staying in cash would be the best way to go.

Maybe more factors. Maybe not so simple.
When you say the dollar lost 25% , gained 10% did you mean the deflation and inflation rates? Otherwise, what did it gain or lose against? (Gold?, Pound Sterling?)
My previous comment was based on inflation rates....
Selling your vacation place during a recession will be difficult. The value of discretionary goods fall the farthest when times get tough.
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Old 12-13-2018, 09:41 AM   #12
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Originally Posted by imoldernu View Post
Makes sense, but looking at the period from 1929 to 1933, the dollar lost 25% while between 2009 and 2013, the dollar gained 10%.

What I really wondered about was whether staying in cash would be the best way to go.

Maybe more factors. Maybe not so simple.
Yep, probably more factors. In 1929-1933, banks failed. Cash in a mattress maybe? Time to watch "It's a Wonderful Life".

In the early 1970's there were recessions and stagflation. TIPs and Ibonds, had they existed probably would have done well.

Guessing that every combination of bad things that could happen, as well as what might mitigate it, doesn't yet appear in our historical record.
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