Why It Is Important Not To Panic During This Financial Crisis

Why It Is Important Not To Panic During This Financial Crisis
When the stock market opened on Friday, October 24th, everyone was bracing themselves for a major loss.  Over and over again, the news reports stated that we are close to a “global recession”.  This news, combined with the recent comment that we are experiencing an “economic tsunami”, all but assured financial institutions that the stock market would take a nosedive.

While there was only a 3% decline in stock prices, experts are nonetheless waiting for “the bottom to drop out”.  As home foreclosures and unemployment rose yet again, the news that home sales were up 5.5% didn’t allay the obvious fears that we are indeed on the cusp of a global recession.

However, there are two words that have been replayed over and over in the news, online, and via comments by economists: “don’t panic.”  Tell that to the man who went to his bank and took out all his cash in a shoebox!

These two words, when juxtaposed against the statement that “this is the worst financial crisis since the Great Depression,” seem more than hollow.  Yet, one has to look at the history of past recessions to understand why this particular advice may be a palpable one.

Here is what Joseph Hearn from AARP Bulletin Today had to say:

“Recessions have historically occurred every few years and they last, on average, about 10 months.  No matter how bad it gets, the vast majority of people will still get up and go to work, pay their mortgage, and take a vacation now and then.  The steepest recession in the last 30 years occurred in 1981.  It lasted 16 months, the economy shrank 2.6 percent and unemployment reached 10.7 percent.  More recent recessions have been less severe.  The 2001 recession lasted only eight months, the economy shrank less than 1 percent and unemployment was barely over 6 percent.”
 
“The last recession was over before it was officially announced,” says Ernie Goss, professor of economics at Creighton University in Omaha, Neb.  “This one will likely be somewhat longer because of the sharp downturn in housing, but the economy will eventually recover.”

These two statements may calm the fear and panic mode for some, but they are analogous to fracturing one’s hand – the pain and discomfort may last only a few weeks, but the long-term effects are still unknown.  Will the hand heal properly; will the individual be able to return to activities once enjoyed, or will there be permanent damage to the hand making it more difficult to carry out even the most mundane task.

The Rescue Plan has “eased the credit crunch somewhat”, as stated by some economists.  But banks continue to go into default and unless and until home foreclosures can be halted, the effects will continue to plague the economy as well as the world markets.