Hey everyone, I know this isn't a topic that anyone seems to want to touch on. I get that it's scary, but this has been weighing on my mind for a couple of months now; and I need a little input for personal preparation. Anyway, it seems to me that financial experts are avoiding talks about the impeding financial recession we're soon to face. There are signs of it everywhere, and they may talk about the signs, but no one seems to be putting two and two together. I understand that it's a scary topic, but fear leads to ignorance, and an eventual repetition of the same things that built that fear in the first place. So, today, I'm finally going to bring up the topic, let you know my views, and hopefully get some feedback from you guys that lets me know if I'm looking at all the different factors I should be. So, let's get started shall we?

Over-inflated Financial Markets

One of the first things I looked at when I came to the conclusion that we're heading down a path to the next financial recession within the next year is financial market data. Throughout the past several years, we've been living, eating, breathing, and sleeping the bull market. In the last couple of months, we've watched the Dow Jones Industrial Average and the S&P 500 both break records. The only problem is that growth in the value of underlying assets isn't moving as quickly as growth in stock prices! Is it just me or does anyone else notice that one of the biggest stories in investing news right now is the possibility of a market correction soon to come?

Asset Bubbles

OK, I know you remember this one. Anyway, remember when the housing market bubble started to burst in 2007-2008? As a matter of fact, this was one of the single most blamed factors for the financial recession. Does it seem like the same thing is happening again? To many central banks around the world it does! As a matter of fact, one of the biggest warnings we've been getting from central banks lately has been warnings about the danger asset bubbles pose to the economy.

Federal Stimulus

This one's interesting as well. We all know that the Federal Reserve has enacted a economic stimulus plan that includes lower rates and bond buying. The process is called quantitative easing; and it's one of the core reasons our economy has been able to recover (at least for the most part) from the last economic recession. However, it's important to remember that these stimulus plans come with expiration dates. Although the Federal Reserve can make the decision to taper the easing over time, at some point, it's got to stop entirely.

Every month or so, we start to see investors getting the jitters as Janet Yellen positions herself for her next press release. The investors are concerned that we'll start to see stimulus plans tapering off early. So, what exactly is going to happen when the quantitative easing plans expire before the end of this year?

Geopolitical Turmoil

When we think back to the last economic recession, there are a few things that we point to...the stock market, the housing market, the war. Right? Doesn't geopolitical turmoil eventually lead to financial turmoil?

If you're a news junkie like me, you can't help but shake your head every time you turn it on. We've got the conflict between Russia and Ukraine reaching a boiling point. As a matter of fact, just last week, the US and EU expanded sanctions against Russia causing economic problems in Germany and the rest of the Eurozone.

As if the Russia/Ukraine issue wasn't enough, all you need to do is look to the Middle East to find more. ISIS is rampaging through oil rich lands as terrorist groups rampage Israel with rockets! Is it just me or are we watching the beginning of worldwide Geopolitical tensions?

Am I Crazy Or Are The Experts Blind?

I would imagine that signs of an upcoming economic recession would be big news. You know, the kind of news that could lead to action, and a possible avoidance of the issue entirely. Unfortunately, that doesn't seem to be the case.

In my eyes, the signs are all right in front of our faces. It's almost an exact repetition of issues we saw 7 years ago; just under different circumstances and with different victims (On the geopolitical end of things).

So, here's my question to you...Does anyone else out there think that we're on the verge of the next economic recession? Are you aware of any of the issues above...if so, do I have them right or is there something I'm missing? 

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Photo Credit

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  1. It is hard to say if a recession is imminent. Things in my area are just seeming to pick back up, housing prices are more towards the 2000 prices than 2006 prices in my region (just last year I got my home for less than it sold for in 2000). But things are moving quickly… houses are moving faster, people are getting jobs faster. It is hard to say. If people are working and a growing part of the economy is controlled by consumers versus the fed induced asset inflation maybe we will transition well. Remember we are just slowing down our purchasing of MORE assets, they are still going to be holding all of the bonds on the balance sheet for who knows how long.
    I guess my concern is that they do not exit fast enough, and start to lower the balance sheet quick enough. If another recession comes and we are still a bloated mess of federal reserve easing, what course of action will they have for next time?

    • Hey Kipp, that’s the biggest concern I’ve got. If another recession does come before we have the time to adjust, there’s really no course of action the Federal Reserve can take. I know things “seem” to be getting better, but in the economic world, it’s hard to gauge things based on what they seem to be. Thanks for swinging by!

  2. I think the markets have been a little inflated. The current bull market has been going strong for a while now. Based on history, we know there should be another cycle soon and it may be headed back down.

    I know that no one can know for sure about what’s coming, but I am always prepared for it…or at least, as prepared as I can be.

    Things have definitely been going really well and that’s always something to question. lol

    • Hey Kalen, I couldn’t agree more with that assessment. History tells us a ball park idea of what should happen when, although we don’t have a crystal ball…it’s pretty easy to see that the markets are definitely due for a correction. Thanks for swinging by!

  3. I’m certainly not an economist, but it does seem like the path we’re on is unsustainable in so many ways. I don’t see how it’s possible for us to keep accumulating so much debt and losing so many jobs without long-term consequences.

    • Hey Holly, thanks. It simply wouldn’t be possible, it’s one of my concerns…thanks for swinging by!

  4. Insightful post. I have started keeping a bit more cash in my checking account than usual – in case stocks dive so I can buy more. Just a bit more though. I’m unsure what the future holds.

  5. The only reason the market keeps running wild is because of quantitative easing. When it stops, the bubble will burst. The real economy, the one outside Wall Street, is too anemic to support the growth in the market. It is almost all an artifact. Thing is, the Fed can’t keep up the cheap money forever. Inflation will start eventually and then interest rates will have to go up. I fear for the future.

    • Hey Brad, really, that’s the big concern here. Quantitative easing is great when done properly, but in this case, I think it’s going to backfire. Most Americans seem to be in the mode of “It’s getting better” without looking at what will happen when the cheap money slows. All I know is that I want to be prepared! Thanks for swinging by!

  6. The marketplace is a rollercoaster and if history serves us right, the market will come down again. But is it going to happen soon? Nobody knows the answer to that. I’m not investing on individual stocks because the market is at it’s highest at the moment (I’ll wait until it comes down a bit), but I am investing in my 401k and Roth IRA and will continue to do so regardless of how the market is doing. It will probably average itself out in the long run.

  7. I don’t necessarily worry about a recession for my 401k or individual stock holdings. I’m young enough to weather any storm, and likely will have to weather about 4 more in my lifetime. In fact, I would love to see a big ol’ market correction like we had 5 years ago. I would be buying stock left and right. I think bubbles are all around, but it’s hard to see when you’re in the middle of one. On a more local scene, I think my property values are inflated, I think the stock market is inflated, and I don’t feel like the average consumer is still 100% secure in the economy. And I didn’t even get into the Russia and Middle East turmoil… Great post!

  8. I think the “experts” you’re referring to are the media, which I think are wrong. I took a few webinars put on by the Rich Dad brand / Robert Kiyosaki, and they all said that the foreclosures were going to increase by the end of 2014; that they’re in the trenches and the media has it wrong. I think unless you live in the world of real estate or job creation (or whatever else), the only way to know what’s going on is by listening to “experts” in the media, which is unfortunate. The best tip I have is to talk to people around you and find out what their experiences are.

  9. You make good points and it does look like that’s where the economy seems headed, but sometimes things are irrational and unpredictable. Like Ryan, I’m investing in the long term in index funds so I no longer worry too much about the market swings.

  10. I wonder too. The economic data doesn’t seem to add up sometimes. The experts are excellent at calling it after it has already happened or underway. I am not worried about it though. Hope for the best, prepare for the worst.

  11. I think that it is very easy to freak out when there are so many financial headwinds blowing our way. I think one of things people don’t consider is the economy of their specific state in relation to the nation’s economy. If you live in a state with very few statewide industries, in addition to the economic headwinds that are blowing I think that there is some cause for concern.

    The reality is that there is ALWAYS geopolitical turmoil: Vietnam, Invasion of Kuwait, Korean War, Riots in France in the 90’s, and the list goes on.

    The recent conservatism of the American consumer will balance out any Recession that may be on its way. And honestly, there’s always a Recession too. You just prepare so that you can get through it. And that is the power and importance of personal finance bloggers. I think we’re all in agreement that the metaphorical sh$t is going to hit the fan. It’s not if but when, so we need to always be preparing for that moment.

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