Recessions have a silver lining

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In his first inaugural address in March 1933, President Franklin D. Roosevelt said, “Then, first, let me state my firm belief that the only thing we need fear is fear itself.

It was the Great Depression. The unemployment rate was over 25%. An estimated 12 million people were unemployed, about a quarter of the civilian workforce.

“More than 11,000 of the 24,000 banks had failed, destroying depositors’ savings”, according at the National Archives.

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Fast forward to now, and as bad as things get – rising interest rates, high inflation, falling stock markets – the economy hasn’t imploded like it did during the Great Depression.

I have to say this because, as Roosevelt pointed out, fear itself can lead to actions that hurt your finances. While many people suffer, there may be ways to cushion the inconvenience.

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Here are seven silver linings if we are heading into a recession.

1. Housing prices could finally return to reasonable levels. Yes, mortgage rates are higher, but the upside is that sellers in many markets will have to lower their asking prices for buyers to qualify for the loans.

With the disappearance of cheap loans, there will be fewer bidding wars to drive up house prices.

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2. Savings rates are on the rise. At least one upside of the Federal Reserve raising rates to fight inflation is that the banks are paying people more to hold on to their money. My credit union has a special 20 month offer on a certificate that would pay me an annual percentage return of 3%.

“Many would-be savers may not have noticed yields rising yet,” said Mark Hamrick, senior economics analyst and Washington bureau chief for Bankrate.com.

Be sure to shop around, Hamrick said.

“Why leave money on the proverbial table when you can have it in your account? The key is to prioritize access to funds when and if an urgent development occurs,” he said. declared.

By the way, no, you shouldn’t stop contributing to your pension plan. Historically, over time, the market recovers. If you bail out now, you will miss the recovery.

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3. The I bond inflation rate could go even higher. The Series I Savings Bond was created as an inflation hedge. Until the end of October, bonds pay 9.62%.

There are two components to the yield of an I bond – a fixed rate and the rate of inflation. The fixed rate, which is currently zero percent, applies for the 30-year life of the bond.

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The fixed rate for newly purchased bonds and the semi-annual inflation rate are announced by the Treasury Department in May and November.

If inflation remains high, I bonds could yield more in November.

To buy an electronic I-bond, you must create an account on TreasuryDirect.gov. Individuals can purchase up to $10,000 in e-Bonds in a calendar year.

4. The dollar is king. Although a lot is changing, if you’re planning on traveling internationally, your dollar can go a lot further. This week, the pound sterling fell to an all-time low against the dollar.

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5. Unemployment is still relatively low. People with jobs and money to spend can spend on luxuries like vacations.

Despite higher prices and rising interest rates, millions of Americans are taking leisure trips.

More than half of Americans plan to travel for one or both holidays this year, even though airfares will be 43% higher than last year, according to Hoppera travel booking application.

However, the unemployment rate rose to 3.7%, according at the Bureau of Labor Statistics. So if you’re worried about your job security or a recession, just cancel your vacation plans for 2023.

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6. Your used car is worth more. If you’re looking to upgrade to a newer car and your car is in reasonably good condition, you’ll get more for your trade-in.

Prices for used cars and trucks jumped 7.8%, according to the latest data from the US Bureau of Labor Statistics. Unfortunately, new car prices are up 10% from a year ago.

seven. Student loan relief is coming. Roosevelt used his executive power to wage war on the economic emergency plaguing the United States.

President Biden is doing something similar by canceling student loan debt to help struggling borrowers. Biden announced a one-time forgiveness program that will erase up to $10,000 in federal student loan debt and up to $20,000 for Pell Grant recipients for people who earn $125,000 or less a year or less $250,000 for married couples.

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The Biden administration also announced last year a time-limited waiver to help write off more debt under the Civil Service Loan Cancellation Scheme.

Act fast to register for the waiver. The deadline is October 31.

Of course, times are tough – and for some people, much harder than others. But remember that fear will not help you make wise financial decisions.

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