Choosing a Life Insurance Beneficiary: What You Need to Know

Choosing a Life Insurance Beneficiary: What You Need to Know

Mutual of Omaha

Choosing one or more beneficiaries is an important step in purchasing a life insurance policy. After all, your beneficiary is probably the reason you have life insurance in the first place.

“Often, the reason to buy life insurance is if you have people that are dependent on your income stream,” explains Sheryl L. Rowling, CPA/PFS and head of Rebalancing Solutions at Morningstar. Other key reasons are to cover your final expenses or leave a gift to a charity or other organization.

If you are thinking about purchasing a life insurance policy, here are some things to think about when choosing your beneficiary.

What is a life insurance beneficiary?

Your life insurance beneficiary is the person or organization that receives the death benefit from your policy.

Almost anyone can be a life insurance beneficiary. Some typical examples of life insurance beneficiaries include:

A person, such as your spouse or a relative

Multiple people, including your children

A trust

Your estate

A charitable organization

A legal entity, like your company

You may have more than one beneficiary, allocated either by dollar amount or percentage of the policy benefit; you may even have contingent beneficiaries, to whom the benefit proceeds cascade in the event that your primary beneficiary dies before you.

Remember that It’s okay to change your mind. As long as you’re still living, you can always change your beneficiary. As your personal life changes, as your family grows, and as your needs evolve, you can change your beneficiary at any time.

Questions to consider

To continue reading, please go to the original article here:

https://www.mutualofomaha.com/advice/understand-how-life-insurance-works/choosing-a-life-insurance-beneficiary-what-you-need-to-know

After the Death of a Loved One, Some Decisions Can — and Should — Wait

After the Death of a Loved One, Some Decisions Can — and Should — Wait

Mutual of Omaha

Losing a loved one can be heart-wrenching. But couple that with handling funeral arrangements and personal affairs, and it can be overwhelming.

“When you’ve lost a spouse or partner, it affects every part of your day-to-day life,” says Peter Lichtenberg, director of the Institute of Gerontology at Wayne State University in Detroit. “It’s such a reorganization of who you are. It’s like taking things and shaking them up.”

Lichtenberg should know. He has been widowed twice.

Following the death of a loved one, Lichtenberg says, people feel pressured: “Everything just got shaken up, and now they feel pressure to reorganize their life and put it back together.” It takes time for the surviving party to get reorganized, Lichtenberg says, adding, “There’s a vulnerability that comes with that.”

In the midst of grief, it’s essential to take your time and seek second and third opinions regarding major decisions, especially financial decisions. “If you rush, you are really vulnerable and you’re not thinking clearly,” Lichtenberg says. “You can get yourself into some predicaments.”

Here’s a quick guide to decisions you need to make right away after the death of a loved one, and what can — and should — wait until you’ve worked through some of the grief.

Decisions you’ll need to make quickly

Arrange for organ donation. If your loved one wanted to donate organs, or make a whole body donation, let hospital staff know immediately. Organ donation is time-sensitive.

Secure property. Lock your loved one’s home and vehicles. If you’re the appointed executor for the estate, consider changing the locks on the home, especially if several people might have keys.

Arrange the next steps for your loved one. Unless your loved one made prearranged plans, you might consider:

To continue reading, please go to the original article here: LINK

5 Financial Mistakes To Avoid in 2023 (and Beyond)

5 Financial Mistakes To Avoid in 2023 (and Beyond)

Heather Taylor   Thu, March 2, 2023

The most financially savvy person isn’t immune to making money mistakes, and this is OK. Sometimes it can be helpful to check up on where you stand financially to ensure you’re not accidentally overspending on something you don’t need or putting off any financial commitments with deadlines.

Review some of these most common money mistakes and, if necessary, make the appropriate adjustments.

Sticking to Outdated Financial Goals

Most individuals set financial goals when they first start a budget and work carefully to reach these goals accordingly.

Take a moment to check in with your financial goals. Did you recently meet any of these goals, such as paying off credit card debt? Are any of your financial goals no longer relevant to you and your needs? Review the financial goals you have right now. Re-determine the priority of each goal. If you find some are no longer relevant or you already met these goals, make a note to set new financial goals to align with your life changes.

Delaying Maxing Out Your Retirement Account

Do you have a traditional or Roth IRA retirement account? There’s still time to max out your account contributions in 2022. Anyone younger than 50 may contribute up to $6,000 to their account for the year. Those over age 50 may add an extra $1,000 each year as part of their catch-up contributions.

While it’s not a financial requirement to max out your retirement account each year, it is highly recommended you do so if you are able to afford it. This is also true of any employer-sponsored retirement plans you may be participating in at your workplace. Maxing out these accounts allows your investments, and any potential earnings, to grow on a tax-deferred basis.

Not Reviewing Credit Card Statements

To continue reading, please go to the original article here:

https://news.yahoo.com/5-most-common-money-mistakes-190015067.html

How Crazy Is This? No One Wants To Own the World’s Best Performing Industry

How Crazy Is This? No One Wants To Own the World’s Best Performing Industry

March 1, 2023  Simon Black, Founder  Sovereign Research & Advisory

Benny Grossbaum was the embodiment of the American Dream.

Born in London in 1894 during the reign of Queen Victoria, Benny and his family moved to New York City (through Ellis Island) when he was still a baby.

At first the family was well off; his father ran a successful business, and they lived in a posh brownstone on Fifth Avenue in Manhattan.

But Benny was just 9 years old when his father suddenly passed away from pneumonia, and the family lost everything. The rest of his childhood was spent in abject poverty, and he later referred to this time of adversity as “the years that formed my character.”

Living in squalor also lit a fire within Benny to become wealthy; he developed a passion for money... and for study. And from the time he entered kindergarten, Benny’s teachers recognized his strong intellect and work ethic.

Benny Grossbaum flew through school. He was so advanced that he skipped several grades, all while mastering Latin and Greek. And he ultimately graduated from an Ivy League university where he studied mathematics.

This was a time, however, of significant anti-German and anti-Jewish sentiment in America. So the Grossbaum family formally changed its name… and henceforth Benny Grossbaum became known as Benjamin Graham.

You probably know that name well; Graham was a legendary investor who is considered the “father of value investing”. And during his career he taught Warren Buffett, Sir John Templeton, and a host of other prominent investors.

But Graham’s track record was far from flawless.

In 1926 as a young, 30-year old Wall Street hot shot, Graham started his own hedge fund called the Graham Joint Account.

Graham’s fund performed really well for the next few years, returning an average 25.7% per year. Not bad.

But this was the Roaring Twenties-- a period of time in the United States were the economy was red hot and the stock market was booming… thanks in large part to the Federal Reserve’s rapid expansion of the money supply.

The Dow Jones Industrial Average rose 2.5x in a roughly three-year period from 1926-1929, and Graham rode that wave.

But even someone as smart as Graham didn’t see the crash coming. In late October 1929, his fund almost got wiped out when the market had its worst decline in history.

The stock market continued to tumble for the next three years, finally bottoming out in 1932; at that point Graham’s fund was down 70%, and he knew he needed to reassess his strategy.

It was from this reassessment… out of his personal failures of the 1929 crash… that modern value investing was born.

Value investing is conceptually very simple. It means we’re looking for a bargain… and we buy assets that are underpriced.

Most people do this every day of their lives. When we go shopping at the grocery store, or browse the Internet looking for discounts, we’re always trying to find a good deal.

In this way, value investors are little different than bargain hunters who research where they can get the best deal on a new pair of shoes.

But it’s been very difficult to be a value investor for most of the last decade; the vast majority of assets in nearly every advanced economy around the world-- stocks, bonds, real estate, etc. were all selling at irrationally high prices.

A lot of investments were priced at absurd levels; even junk bonds sold at record high prices. The sovereign bonds of insolvent European nations traded at NEGATIVE yields. And money losing businesses with no hope (and no plan) to ever turn a profit traded at record high valuations.

It was really, really hard to find a great deal in the midst of all that chaos.

But market conditions have now changed dramatically, and there are plenty of great deals out there.

I’m particularly drawn to ‘real assets’ and businesses in real asset sectors-- particularly mining companies, energy companies, agriculture companies, and companies that develop productive technology.

Real assets tend to be a great way to hedge inflation… and as I’ve written before in previous letters, I believe inflation is here to stay.

What’s incredible is that there are so many ‘real asset’ businesses that are available at extreme discounts right now… which sounds perfect. And yet very few people are buying.

Energy companies are a great example.

There are profitable, well-managed natural gas businesses right now that are selling for as little as TWO times earnings (i.e. a P/E ratio of TWO).

Bear in mind that natural gas prices in the US are only $2.70 right now… and there’s a STRONG case to be made that prices will rise substantially in the future thanks to the new Liquefied Natural Gas (LNG) export boom.

For decades, the United States barely exported any of its natural gas abroad, due in large part to the difficulties in transporting gas across oceans.

But now that LNG transport has been perfected and new LNG export terminals are being built in the US, it’s very likely that more and more US natural gas will be shipped overseas to Europe and Asia (where prices are MUCH higher).

This trend would leave less natural gas in the US… and most likely lead to higher prices… and even higher profits for natural gas companies.

And yet it’s possible to buy shares in their companies right now for just 2x earnings. That’s cheap. That’s value.

It’s not just natural gas companies; plenty of mid-size oil production companies are also selling for ultra-cheap valuations.

It really is amazing that oil companies had their most profitable year EVER in 2022. Yet nobody wants to own them.

And the reason is simple: it’s apparently evil and immoral now to own oil and natural gas companies. Fund managers (under pressure from the woke elite) have sold off their oil and gas stocks because they’re all terrified of Greta Thunberg.

Other ‘real asset’ sectors are also cheap. There are even some fertilizer companies and agriculture businesses trading for low, single-digit multiples to their current/future cash flow, and price/book ratios below 1.

Value investors have been waiting patiently for more than a decade for great bargains to emerge. And, finally, there are some high quality, well managed businesses out there that can be acquired at a steep discount.

To your freedom,  Simon Black, Founder  Sovereign Research & Advisory

P.S. Karl B, the new editor and publisher of The 4th Pillar, has already featured two such promising companies in the January and February 2023 issues. Karl has found unique ways to gain exposure to the gold industry's upside... but without nearly the same level of risk as mining companies. For more about the opportunities that Karl is regularly uncovering for The 4th Pillar readers, you can click here.

https://www.sovereignman.com/investing/how-crazy-is-this-no-one-wants-to-own-the-worlds-best-performing-industry-146122/

Here’s How You Can Double Your Money Using the Rule of 72

Here’s How You Can Double Your Money Using the Rule of 72

David Nadelle   Wed, March 1, 2023

For the climate-conscious, a marker of 72 may be good enough when you’re setting the thermostat. But when it comes to measuring money, the financially aware use lucky number 72 principally to calculate how long it will take to double their investments.

The Rule of 72 is a simple financial planning tool that can be used to calculate how fast your money will double at a given rate of return involving compound interest. Per SmartAsset, the mathematical equation is: 72 ÷ your compound annual interest rate = how many years until your investment doubles.

For example, using an annual interest rate of 8%, your dividend will double in 9 years. Conversely, if you want to know what interest rate you will need to achieve your goal of doubling your investment, reverse the equation and divide your desired number of years from 72 (72 ÷ 4 years = 18% required annual interest rate).

Rule of 72 Has Been Around Since the 1400s

According to Wealthsimple’s Dennis Hammer, the Rule of 72 has been around for centuries. Hammer cited Italian mathematician Luca Pacioli as first referencing it in a 1494 text titled “Summary of Arithmetic, Geometry, Proportions, and Proportionality.”

“In wanting to know of any capital, at a given yearly percentage, in how many years it will double adding the interest to the capital, keep as a rule [the number] 72 in mind, which you will always divide by the interest, and what results, in that many years it will be doubled,” wrote Pacioli. “Example: When the interest is 6 percent per year, I say that one divides 72 by 6; 12 results, and in 12 years the capital will be doubled.”

To continue reading, please go to the original article here:

https://news.yahoo.com/72-magic-number-money-why-161944103.html

The Dangers of Closing a Bank Account

The Dangers of Closing a Bank Account

Crystal Mayer  Tue, February 28, 2023

Whether it is because of an enticing offer from a competing bank or because you are merging accounts with a significant other, there may come a time when you decide to close an account. While there is nothing wrong with closing a bank account, you need to be sure that it is done the correct way in order to avoid certain pitfalls.  An open line of communication with your financial institution is imperative to successfully closing an account and preventing any negative impacts on your credit or cash flow. By planning ahead and ensuring that you have a positive balance, you can mitigate the following risks associated with closing your bank account.

Indirect Impact on Credit Score

One of the biggest myths is that closing a bank account will negatively impact your credit score. According to Experian, one of the largest credit reporting agencies in the country, “closing a bank account won’t directly affect your credit.” However, a poorly planned closure could indirectly impact it.

The credit reporting giant explains that financial institutions (banks and credit unions) typically don’t report bank closures to reporting agencies. The closure is not listed on your credit report like a credit card closure would be, but it could cause your score to go down if you have a negative balance in the account before closing.

Having a Negative Balance

Experian notes that a negative balance on a closed bank account could be reported to a collection agency. The collection agency may then report it to credit bureaus (Experian, Equifax and TransUnion). Failure to pay the debt could harm your credit for a substantial amount of time.

To avoid this problem you should do your due diligence before closing any account. You should never intentionally close an account with a negative balance. Furthermore, you want to make sure there are no pending transactions that could take your account into the red.

A report by KTLA 5 suggests individuals “make a list of recurring deposits and withdrawals” before closing an account to ensure it will be resolved in good standing. They also caution people to transfer any withdrawals and settle any balances before moving forward with the closure.

Reporting to ChexSystems

To continue reading, please go to the original article here:

https://news.yahoo.com/dangers-closing-bank-account-120013417.html

Biden Aims To Shatter Record For Fastest Tax Increase

Biden Aims To Shatter Record For Fastest Tax Increase

February 27, 2023  Simon Black, Founder  Sovereign Research & Advisory

In 1969 while testifying to Congress, US Secretary of the Treasury Joseph Barr called out 155 Americans who were not paying their “fair share” of taxes.

Those 155 Americans had managed to reduce their federal tax liability to essentially zero by using perfectly legal deductions and credits in the tax code.

Congress was furious. Even though these taxpayers were following the law, the politicians didn’t like it. So they created a new, highly bureaucratic layer of tax complexity on the entire nation, specifically to target those 155 people.

It became known as the Alternative Minimum Tax (AMT).

But don’t worry, Congress said, this new AMT will only affect a couple hundred people...

The idea behind the AMT is to ensure that high-income earners pay at least a minimum level of taxes, regardless of the various deductions and credits they might be eligible for.

So they’re forced to calculate their taxes under two different systems:

The regular tax system which allows deductions for things like state income tax, local sales tax, property tax, and itemized deductions.

The Alternative Minimum Tax system which does not allow most deductions and exemptions.

The taxpayer must then pay the higher of the two taxes.

I don’t know about you, but doing my taxes just once is a big enough waste of time.

And again, while the AMT originally targeted just 155 specific people, within decades millions of Americans— including many in the middle class with modest incomes— were forced to calculate their taxes twice, and pay the Alternative Minimum Tax.

And while the Tax Cuts and Jobs Act of 2017 increased the exemption amount for the AMT, hundreds of thousands of taxpayers are still subjected to it. Plus, when those tax cuts expire in 2026, the AMT is expected to once again ensnare seven million taxpayers.

This story is not unique.

For example the 1913 income tax was only supposed to affect the wealthiest households in America. Just 3% of the US population paid it, and the base rate was 1% while the top rate was 7%.

By 1922— just nine years later— the government had increased the tax to beyond 50%. Plus they had created DOZENS of tax brackets, with most of the middle class having to fork over a hefty portion of their income to Uncle Sam.

But that isn’t even close to the record time between when a tax was introduced, and when the government declared its intention to increase it.

Look at the recent stock buyback tax, which politicians snuck into the Inflation Reduction Act last year.

It is a 1% tax on companies which buy back their own stock, and it went into effect on January 1st of this year.

38 days later, Aviator-Sunglasses-in-Chief announced in his State of the Union address that he wants to quadruple the tax to 4%.

That’s almost certainly a record— thirty eight days from the time a new tax took effect to the time they start trying to increase it!

Even the first income tax, introduced in 1861 (and later declared unconstitutional) took 11 months until the rates were nearly doubled, from 3% to 5%.

The key lesson is that taxes are never truly targeted, nor temporary.

But even more crazy is that increasing taxes doesn’t even guarantee more money for the government.

Top marginal income tax rates in the US have ranged from as low as 28% during the 1980s, to as high as 94% just after WWII.

But during that time US tax revenue since 1946 as a percentage of GDP has remained around a narrow band of around 19%.

In other words, the government’s slice of the nation’s economic pie is always around 19%– no matter how high or low they set tax rates.

So you’d think they’d understand the obvious implication here: if you want to maximize tax revenue, you need to concentrate on making the pie bigger... not on making your individual slice bigger.

With a bigger pie, everyone wins. But these progressive socialists don’t understand that simple maxim.

Instead they’re talking about wealth taxes, billionaire taxes, or making the rich pay their “fair share”. And they think you’re too stupid to realize that the middle class will soon be paying these taxes too.

Even the President’s campaign promises to not raise taxes on families making under $400,000 have already gone out the window. Now they want people making just $600 from online platforms like Etsy and eBay to be reported to the IRS.

Plus they’re going after undeclared tips from waiters and other food service employees. Not exactly millionaires...

These politicians are like ravenous beasts, and they’re coming to feast on your livelihood .

That’s why it makes so much sense to take advantage of the perfectly legal ways to reduce your taxes. I’m not talking about dodgy schemes and creative loopholes. I’m talking about easy deductions written right into the tax code.

We talk about these all the time— things like maximizing contributions to retirement accounts, moving overseas, or even moving to Puerto Rico can slash your tax rate (in some cases to 0).

They think you are too stupid to notice these tax increases, or to realize that sooner or later they’ll apply to you.

But using their own legal rules to reduce what you owe is a great way of saying, I’m not as stupid as you think.

To your freedom,  Simon Black, Founder  Sovereign Research & Advisory

https://www.sovereignman.com/tax/biden-aims-to-shatter-record-for-fastest-tax-increase-146105/

8 Steps To Improve Your Finances in One Year

8 Steps To Improve Your Finances in One Year

Feb 1, 2023  By Jordan Rosenfeld

Financial security is at the top of many people’s wish list. Whether you’re in a job that doesn’t pay what you deserve, you’ve got too much debt or your spending habits outreach your income — this next year can be the one where you finally improve your money situation.

Follow these expert tips to make it happen:

Take Control of Credit Card Debt With a Balance Transfer

Paying down debt should be a top priority for anyone trying to improve their finances in a year’s time. One strategy is to move your existing credit card balance over to new card that offers a very low interest rate. While the amount you owe won’t change, you’ll save money on interest payments, allowing you to pay down your balance more easily.

When choosing a credit card for a balance transfer, you’re looking for two key characteristics: a very low introductory rate and low balance transfer fees.

One card that fits the bill is Navy Federal Credit Union’s Platinum Credit Card. With a low intro APR for 12 months on balance transfers made in the first 60 days, the Platinum Credit Card is designed to help you pay off your credit card balance faster.

After the introductory period ends, the Platinum Credit Card still offers a low variable APR for balance transfers. That rate also applies to new purchases, so this card is ideal for any larger purchases you may have planned.

Prioritize Your Car Loan

To continue reading, please go to the original article here:

https://www.gobankingrates.com/money/financial-planning/steps-improve-your-finances-in-one-year/?utm_term=incontent_link_13&utm_campaign=1211296&utm_source=yahoo.com&utm_content=13&utm_medium=rss

Are Americans Keeping Too Little Cash in Their Checking and Savings Accounts?

Are Americans Keeping Too Little Cash in Their Checking and Savings Accounts?

Casey Bond   Monday, February 27, 2023

Choosing the right bank account is an important decision, as it can impact how easily you’re able to manage your daily finances. But you’ll also have to decide how much to keep in each account. Let’s explore some popular banking strategies to make sure you’re doing it correctly.

Which Bank Account, and for What?

Derek Ripp, a CFP and partner at Austin Wealth Management, suggests structuring your cash into three groups:

1. Routine, Recurring Expenses

These are the predictable bills that come in every month. Since you’ll need to access this money often, it’s a good idea to keep it in a checking account. A new GOBankingRates survey found that 90% of Americans have a checking account that they currently use. This type of account allows an unlimited number of withdrawals. Some offer higher interest rates, though you won’t (and shouldn’t) keep enough money on deposit to earn any significant returns.

Start by figuring out the lowest amount of money you need to cover your monthly expenses, then make sure you maintain at least that balance in your checking account at the start of each month. “The amount you hold here is up to you,” Ripp said. “Some people keep the bare minimum and others prefer more of a cushion.”

In the GOBankingRates survey, researchers discovered 37% of Americans have $100 or less in their checking account and 19% have $100 to $500 in their account to cover expenses. It’s likely many people spend more than $500 a month, so they should really be trying to up that account a little in order to always be able to cover their monthly expenses without needing to rely on a credit card or some other form of payment.

It’s also good to keep in mind that if you don’t keep enough money in your account, you could get hit with overdraft fees, which average a hefty $29.50, according to Statista.

So, be sure to monitor the balance regularly. Fortunately, most banks allow you to set up email and text alerts that notify you when the balance drops below a certain threshold.

2. Larger, Planned Expenses

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/much-money-keep-type-banking-132545262.html

Americans More Likely To Talk about Politics & Relationships than Money

Americans More Likely To Talk about Politics & Relationships than Money

A survey of 2,000 Americans found they're more likely to talk about politics and relationships with their friends than money

Tanza Loudenback Jun 16, 2021

Even after a year in which personal financial hardship dominated the national conversation, results from Insider's new Master your Money Pulse Poll suggest that Americans still aren't comfortable discussing money with friends.

When asked which topics they regularly discuss with friends, each of the following outranked the topic of money: health, sex and relationships, politics, current events, and pop culture. The survey was conducted in May 2021 and included responses from 2,130 people 18 and older.

Although there is some variation among generations, the trend tracks across all age groups — Americans are most likely to talk about current events with their friends and least likely to bring up finances.

Old Americans say the are less likely to talk about money with friends:

47% of 18-to-34 year olds regularly discuss money

38% of 35-to-54 year olds regularly discuss money

25% of 55-to-74 year olds regularly discuss money

These results underscore a longstanding taboo around discussing personal finances in America. This "society-wide gag rule" exists at varying degrees, Joe Pinsker wrote in an article for The Atlantic, particularly between socioeconomic classes, genders, and cultures.

"Many Americans do have trouble talking about money — but not all of them, not in all situations, and not for the same reasons. In this sense, the 'money taboo' is not one taboo but several, each tailored to a different social context," Pinsker wrote.

Talking about money can lead to better financial outcomes

Money is an uncomfortable, emotionally charged topic for a lot of people. If you feel like you're lacking or not saving as much as you've been told to, there may be embarrassment or shame. If you feel like you're doing well compared to what you know (or assume) of others' situations, there might be a tinge of guilt.

To continue reading, please go to the original article here:

https://www.businessinsider.com/data-americans-dont-talk-about-money-with-friends-2021-6

If There Is a Recession, It Has Already Happened

If There Is a Recession, It Has Already Happened

2023 doesn’t look nearly as bleak as consensus economic forecasts and financial news reports suggest.

Bob Diamond, Larry Kantor  Published on February 8, 2023

Arecession in 2023 seemed to be the consensus coming into the new year. That is no surprise, given that last year delivered the highest rate of inflation, the most monetary tightening in four decades, and an inverted yield curve. Strong January economic data—especially the U.S. employment report—may cause many forecasters to change their minds or delay the timing of an expected downturn to later in the year. But if this cycle ends up being designated as a recession, it’s already been underway for many months and will probably be over by the spring.

Recessions are typically generated by sharp declines in interest-rate-sensitive sectors, like housing and manufactured goods, and we have been experiencing that for quite some time.

Housing is clearly in a recession that began almost a year ago. Mortgage rates more than doubled, and home sales have declined for 11 consecutive months—amounting to a cumulative drop of nearly 40 percent. House prices and rents have been falling since last summer.

Consumer spending on goods in real (inflation-adjusted) terms peaked in mid-2021. This followed a surge when many services such as travel and dining at restaurants were off-limits, forcing people to spend a lot more time at home. The decline accelerated toward the end of last year following consumers re-engaging in those services and a huge rise in interest rates.

Retail sales in November and December plunged at a double-digit annual pace, forcing retailers to discount items to eliminate excess inventories, cancel expansion plans, and reduce their workforce.

That is what happens during recessions. The technology sector is also contracting following a COVID-induced boom in the demand for tech services like online shopping, food delivery, streaming services, and remote work and video conferencing. Just like the retail industry, tech companies expanded their capacity to an extent that turned out to be excessive.

Normally, all of that would be enough to crash the economy. But the COVID experience delivered several unusual developments that allowed the economy to hold up unusually well:

A combination of factors—including early retirements, less immigration, people either sick or caring for someone who is, and a dearth of childcare services—produced a massive shortage of labor. Job openings peaked at a record 11.5 million and there are still 11 million openings compared with less than 6 million people unemployed. That has allowed the economy to continue generating strong job growth even as labor demand weakens. As a result, household income isn’t getting hit nearly as hard as it usually does, mitigating the spread from the cyclical sectors to the rest of the economy.

Household and business balance sheets have remained relatively healthy, supported by huge income and wealth gains generated by unprecedented monetary and fiscal stimulus. Households were able to build up a huge stock of excess savings that they are still digging into to support spending. In addition, consumers and businesses did not take on excessive leverage and debt to the degree usually seen in the later stages of economic recoveries.

Energy and other commodity prices have fallen sharply, contrary to the experience during the great inflation of the 1970s and early 80s. The decline in gasoline and natural gas prices has boosted household purchasing power, while sharp drops in lumber and steel prices have helped keep production costs under control.

The path of the economy going forward will be determined largely by the future path of inflation and how central banks respond to it. Fed tightening is working: the cyclical sectors are getting clobbered, and most asset prices—including stock and bond prices—have fallen significantly. Most important, inflation has diminished at an extraordinarily rapid pace.

 To continue reading, please go to the original article here:

https://www.worth.com/if-there-is-a-recession-it-has-already-happened/