What Causes Good vs. Bad Economies?
Ken asks Dave to explain what a recession is and what causes good and bad economies. Dave says it's a lengthy explanation, but he gives Ken the short version.
QUESTION: Ken on Twitter asks Dave to explain what a recession is and what causes good and bad economies. Dave says it's a lengthy explanation, but he gives Ken the short version.
ANSWER: A recession is, technically speaking, when the economy recedes. It shrinks as measured by the GDP—the gross domestic product. The GDP includes all of the goods and services created in America as a whole. When the size of the economy shrinks six consecutive months, then you have a recession. One month of shrinkage is not a recession. That's how we can be sitting with high unemployment, troubled levels of foreclosures, and still have the government come out and accurately say we are out of a recession.
A recession is not based on unemployment. A recession is not based on real estate activity or foreclosures. A recession is not based on the number of bankruptcies. A recession is not based on a number of pained statistics in the marketplace; a recession is based on the economy actually receding as a whole. We are coming out of the first real recession in 20+ years.
A bad economy is one that is not growing and thriving and moving things around. A good economy is one where it is. It can include the stock market doing well, the real estate market doing well, and unemployment being low. Those are signs of a good economy.
You cannot become a victim to what the news is telling you is happening out there. You have to control your destiny. The danger of discussing "the economy" is it tends to give us an excuse to not go get our jobs done. Sorry. You can't use that excuse here.