The Recession Flu

It is quite strange when you are first introduced to the concept, but if you actually look at the common flu and compare it against an economic recession that we are experiencing today, you will find startling similarities. We are doing this to draw similarities between the two conditions and hopefully will learn a bit more about the recession and how it relates to the worsening of the general public's credit scores and making it hard for people to get loans in this more turbulant economy.

What Happens in the Beginning

Firstly let’s look at the very beginning before the actual recession. This is actually in the boom stage where business is going very well, inflation is steady but possibly rising, unemployment is very low and the mood is generally very good. People are confident about the future and banks are also very easy with allowing the flow of credit to people who have poor credit / bad credit histories even if their documentation isn't great etc. If anything a boom is when the economy is running at almost 110% and the smart ones will know that this simply can’t be sustained for the long run.

This is almost exactly what happens in flu too. Before the flu comes, your personal activity levels are almost always very high. You are running around and your life is full of activities. You are coping with the increased stress but you kind of know you can't take it for very much longer. Those of you who are in the know will realize that this flood of activity is actually taking a toll on your immune system. It is basically a set up for you to fall ill in the near future, much like how a huge boom will set-up for a bust.

When it all Hits

The actual recession is when all that frenzy of activity before suddenly dies down almost overnight. As the frenzy builds, more people will realize that their investments are not in a sound position and are risking too much. All it takes is one person to start a large selling position to scare the market and the house of cards will tumble within a matter of minutes. One of the easiest indicators of when this is about to happen is to monitor the bank’s lending rates and loan acceptance ratios. If you see that the banks have reduced the number of bad credit loan acceptances then you know that they see the banks feel that it is about time that the economy will turn. It is high time that you heed the bank’s advice and be ready for the recession.

Again this is the same as flu. All the frenzy of work that you are doing will eventually make you realize that if you don’t slow down, your body will break down. All it needs is just that one extra hour of work or that one less hour of sleep that will throw you off the edge. If you feel that you are at the edge of falling ill from too much frenzied work then you can choose to slow down. With the economy, the greed of people doesn’t allow that to happen and a hurried economy is hard to slow down.

When it all Comes

The onset of a recession is very fast. It come almost in a blink of an eye and can be particularly hard to get out of. It is often said that it takes the economy as much as 100x as much time to recover compared to it falling in its initial stage. This is again not much different from a flu, it can take you as little time as in hours to develop the terrible cough and a heavy head but may take up to months to fully cure. The timescales of the two are strikingly similar. This is also in the same way banks will eventually release their tight hold on credit. Once the recession hits, only those with the best credit histories can even hope of getting any loans. As the economy starts to improve, the banks will slowly release their credit policies from their tight grasp and offer credit to those who have worst credit histories.

The medication and treatment of recessions and the common flu is also very similar. It involves flushing the system and getting plenty of rest. In terms of the recession, bad companies which aren’t inherently competitive will be bankrupted and only the good ones which are well managed and lean will survive. The recession will also allow the market to rest from all the frenzy of activity. It is only with the proper rest and the purging of bad companies that the economy will come out of its recession phase and start it's way to becoming the roaring tiger that it once was. The bank's lending is also severely tightened and may sometimes feel like they have a blocked nose. Nothing gets in and nothing gets out, borrowers with adverse credit histories will find that it becomes almost impossible to get a loan approved in this climate.