Financial Crisis or Not, Don't Panic!

When the stock market opened on a Friday morning late in October of 2008, everyone was bracing for major losses. Over and over again, the news reports stated that we were close to a global recession. This news, combined with the additional comments that we are experiencing an economic storm as potentially cataclysmic as anyone alive could remember, all but assured financial institutions that the market was in for a major nosedive.

While, at the time, there was only a 3 percent decline in stock prices, experts were nonetheless waiting for the bottom to drop out. As foreclosures and unemployment continued to rise day after day, the news that home sales experienced a slight (albeit temporary) increase in activity did little to allay the overwhelming fears that we are indeed on the cusp of a recession that will affect every country on earth.

However, there are two words that have been replayed over and over in the news, online and via comments by economists: "Don't panic." Certainly, for the average family that's about to lose their home, this is much more easily said than done. Indeed, those two words, when placed side-by-side with the sentiment stating that "this is the worst financial crisis since the Great Depression," seem somewhat hollow. Nevertheless, we must look at the history of past recessions to understand why this particular tidbit of advice is still a reasonable response to the circumstances at hand.

Joseph Hearn, of AARP Bulletin Today recently had to this 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 mortgages and take a vacation every 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."

Furthermore, Ernie Goss, professor of economics at Creighton University in Omaha, Nebraska has been quoted as saying: "The last recession was over before it was officially announced. 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 temptation to panic for some, but they're still somewhat analogous to fracturing one's hand – the pain and discomfort may last for only a few weeks, but the long-term effects are still currently unknown. Will the hand heal properly; that is, will the individual be able to return to activities that he or she once enjoyed; or will there be permanent damage to the hand, making it more difficult to carry out even the most mundane task.

According to some economists, the Federal Government's 'Rescue Plan' has eased the credit crunch, at least somewhat. But banks continue to go into default, companies continue to go under, and people continue to lose their jobs. Until these and other hazardous circumstances can be positively dealt with, the effects will continue to plague this nation's economy as well as the world markets.